Document 1 of 100

ANALYSIS OF STRATEGIC ISSUES AT BEWARI.COM: A B2B CASE STUDY IN THE MIDDLE EAST

Author: Rao, Ananth; Awan, Mahmood A

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Abstract:

The introduction of Internet use and the resulting growth in e-commerce has changed the service industry in the 21st century. These factors have led to changes in online transactions and have introduced new, Internet-only services companies, forcing traditional service institutions to quickly develop and implement an e-commerce strategy. The current case analyzes strategic issues surrounding e-business at Bewari, a B2B company established in June 2000 that allows companies in the Arabian Gulf region to buy and sell goods and services online. Bewari is a hypothetical company. At the request of the real company's management, its name is kept confidential since Bewari did not want to disclose its operations to its competitors. This case study is chosen since the Arabian Gulf region is unique in terms of culture, tradition, business practices, human and organizational values compared to those in developed economies. Bewari has chosen to create and maintain the highest standard B2B customer service and trading facilities in the Middle East.

Full text:

CASE DESCRIPTION

The main subject of this case is B2B e-commerce in the Middle East. Secondary issues examined are: strategic factors facing the company examined in the case study; the B2B business model; privacy and security issues of e-commerce; and new business strategies for B2B.

This case has a difficulty level of four and is best utilized in a senior level Strategic Management / E-Marketing course. Depending upon the depth of analysis, the case can be taught in three to six hours and requires a preparation time of three to six hours.

CASE SYNOPSIS

The introduction of Internet use and the resulting growth in e-commerce has changed the service industry in the 21st century. These factors have led to changes in online transactions and have introduced new, Internet-only services companies, forcing traditional service institutions to quickly develop and implement an e-commerce strategy.

The current case analyzes strategic issues surrounding e-business atBewari, a B2B company established in June 2000 that allows companies in the Arabian Gulf region to buy and sell goods and services online. Bewari is a hypothetical company. At the request of the real company's management, its name is kept confidential since Bewari did not want to disclose its operations to its competitors. This case study is chosen since the Arabian Gulf region is unique in terms of culture, tradition, business practices, human and organizational values compared to those in developed economies. Most of the economies in the region are oil-rich. Business development practices in one economy in a particular sector are rapidly imitated by businesses in the neighboring economies in the region. The economies in the region form a major trade bloc of major importance to neighboring European and Asian economies.

Bewari has chosen to create and maintain the highest standard B2B customer service and trading facilities in the Middle East. The case shows that Bewari:

* is an ideal partner for helping companies reach new markets in real time

* is agile enough to respond to fast changing market opportunities

* provides innovative online B2B services, enabling B2B firms to extend their reach and enhance their competitive standing, and integrates supply chain.

Nevertheless, growing pains have ensued. From its inception, Bewari has given access to the resources and culture thought necessary to allow it to succeed. While Bewari was given the right resources and freedom to succeed, it was asked to do so within an organization incapable of producing the desired product. Bewari faces pressure from its stakeholders to improve performance and maximize synergies from recent alliances. In addition, decisions and options regarding Bewari must be taken into consideration as part of Bewari' s overall strategy.

CASE OBJECTIVES

The purpose of the case is to engage the students to analyze the:

1 . Customer profile of e-commerce customers

2. Strategic factors facing the company

3. B2B business model

4. Privacy issues in e-commerce

5. Security issues in e-commerce

6. New business strategies for B2B

SUGGESTED CLASSROOM APPROACHES TO THE CASE

1. We suggest the placement of this case in the first half of your Strategic Management/Internet Marketing/E-Marketing/International Marketing Strategy course or anywhere you do a segment on the Internet.

* This case makes a nice package to discuss the B2B e-commerce business model.

* We suggest that you have the students review the case

2. This is a very high interest case for the students.

3. If you want a team presentation we suggest the team be limited to three or four students. It worked well as a team presentation.

4. A typical team presentation of their strategic audit using PowerPoint may last about 45 minutes.

5. This case can be developed into an interesting lecture/case discussion package on the Internet.

In addition to the substantive learning objectives discussed above, the case would have students learn to develop formal oral presentations covering the following specific questions:

DISCUSSION QUESTIONS

1. What are the strengths and weaknesses of Bewari?

2. What are the opportunities and threats facing Bewari?

3. What are the strategic factors facing Bewari?

4. How do each of Porter's five forces impact on Bewari?

5. What will be the impact of cannibalizing of Bewari's customers by Bewari's associates and competitors?

6. What are the security and privacy issues in online e-commerce?

7. What are the supply chain management issues involved in B2B e-commerce?

8. How can the following issues facing Bewari's Management be effectively handled:

* Maintain its systems and operations to share info and learning across Bewari's online expertise,

* Convince buyers to change

* Create trust in the minds of buyers and suppliers of B2B

* Facilitate the acceptance of online transactions as legal by the courts

* Increase internet penetration by buyers and suppliers

Further to the above set of questions,

9. Ask your students whether they transact via the Internet: This allows you to discuss with your students the advantages and disadvantages of online e-commerce.

10. Ask your students whether their parents transact via online B2B e-commerce.

11. Ask your students what services are offered online by B2B e-commerce firms.

12. Is B2B the future e-commerce of today?

STRATEGIC AUDIT PAPER

Bewari is owned by Bewari Management for B2B e-commerce. The teaching notes prepared by the case authors, cover in depth, the factors normally covered in a strategic audit, so we provide only Authors* Teaching Notes for this case.

General Framework

To begin the analysis, the case writing team has used two traditional corporate strategy frameworks, Porter's Five Forces and SWOT Analysis, which shed light on the viability of Bewari.com.

This Five Forces Analysis, though limited by its static nature, suggests that this industry is unattractive due to the high level of industry competition and high risk of new entrants. The case provides such evidence by stating the existence of over 500 online B2B e-businesses with more than 500 are predicted to be launched by the year 2007. In addition, the uncertain effects of suppliers and substitutes add further risk-potentially worsening the attractiveness of the crowded B2B online industry.

The SWOT analysis for Bewari shows considerable strengths and opportunities that are nonetheless outweighed by the weaknesses and threats. Projecting the SWOT analysis into the future makes the weaknesses and threats even more significant as competition in this industry heightens.

Furthermore, B2B e-commerce faces the following challenges:

* Change Management

Buyers (end users) have been using their traditional or electronic procurement system for some time. They are happy with the results. Buyers are asking why they should change, and what value is added to their businesses by implementing changes. (For the instructor: This can be addressed by having a champion inside the buyer organization and work closely with him to make sure that he will get the full credit for the project success. Education and awareness can be created through different channels: seminars, road shows, workshops, participation in TV, Radio and Media programs which talks about benefits and values of e-commerce. Also share best practices and success stories. Undertake site visits to current buyers and suppliers to demonstrate benefits to others).

* Trust (Security and Privacy)

Buyers and suppliers need to be sure that their transactions have a high level of security and privacy. In addition, they need to be aware of security features available in the application. The challenge is: how can trust be created in the minds of buyers and suppliers of B2B? (For the instructors: This can be addressed by again educating students about the security features and functionalities available in the e-commerce application and demonstrate how they can use them to maximize the benefits

* Laws and regulation

Buyers and suppliers need to be sure that their transactions are accepted legally by the court and they need to be aware if there is any law which covers electronic transactions. The challenge is: how can these be ensured in the minds of buyers and suppliers? (For instructors: This can be addressed by again educating them that there are electronic transaction laws, explain the related articles if applicable to their business).

* Infrastructure

Buyers and suppliers need to have an internet connection in order to start using any web- enabled e-commerce application. The challenge is how to increase internet penetration on the part of buyers and suppliers. (For instructors: On a country level it is very important, that the targeted countries have high level of internet penetration among the business sectors).

Strategic Factors (SF) (Based on Case Authors' SWOT Analysis)

SF 1 Financial resources of Bewari to build the Bewari brand

SF 2 Leading edge technology and partnerships

SF 3 Fastest customer account growth among online B2B e-commerce

SF 4 Perceived value far below traditional B2B firms

SF 5 Limitations from Bewari culture and difficulties

SF 6 First mover onto Internet among major B2B e-commerce providers

SF 8 Access to leading Internet companies through First USA

SF 9 Increasing numbers of online banks

SF 10 Market entry by other financial services institutions

SF 11 Potential entry by major Internet portals (AOL, Yahoo).

DISCUSSION POINTS

The case writers recommend that some combination of the following questions be used to begin discussing the issues presented in the case. Knowledge from both general and innovations frameworks shows clearly the answers to questions posed in the case.

1. Is there cannibalization in Bewari and its associates?

The analysis shows that Bewari must cannibalize its own customers in order to prevent the many other online B2B competitors from doing so. Unfortunately, the case demonstrates confusion at Bewari. Bewari management seems clearly to prefer a different target market. Their failure here can be seen earlier in the case, with Bewari.com having 2400+ member partners.

2. What strategy should Bewari take in the emerging B2B scenario?

Bewari has four primary options:

* Engage associates through JV

* Issue franchises

* Internal B2B acquisition

* Spin-off innovation

Only the second option viz., issuing franchises, rectifies concerns regarding culture and market perception. The analysis in the teaching notes supports this strategy.

3. What is the future of Bewari in the era of e-commerce?

The case shows Bewari capable of recognizing potential innovations, but unable to capitalize on them. Thus Bewari's best position in e-commerce may be to serve as an "Internet incubator" for B2B services products, which identifies, develops, and then spins off innovations. Each of our recommendations stems from the "elements" of a B2B business model analysis.

Subject: Business to business commerce; Electronic commerce; Web portals; SWOT analysis; Strategic management; Case studies

Location: Middle East

Classification: 2310: Planning; 8331: Internet services industry; 9178: Middle East

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 4

Pages: 25-32

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables Illustrations

ProQuest document ID: 216301772

Document URL: http://search.proquest.com/docview/216301772?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 2 of 100

OPERATIONAL IMPROVEMENT PROJECT MANAGEMENT: CATEGORIZATION AND SELECTION

Author: Jung, Joo Y

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Abstract:

This case describes a systematic way of categorizing, evaluating, and selecting projects using information from a leading automotive electronics component manufacturer. The projects discussed in this case study are based on real life projects. However, the company name, project names and financial numbers are modified in order to protect the company's identity. This case study describes seven different project proposals that were presented to the company's management staff for evaluation and selection. Five projects are to be selected which will be sponsored by the plant's top management. The projects come from multiple disciplines and department areas and are affecting the overall company performance. The company's performance is judged on their performance in reference to the following areas: scrap cost, first time quality, operational effectiveness, and assembly plant returns. The candidate projects are evaluated using both numeric and non-numeric project selection models to determine where the management team for this automotive electronics manufacturer should allocate and focus their efforts for the upcoming year. Several teams composed of personnel that have been trained in Six-sigma methodologies are available to begin addressing these issues immediately and will be supported by current trainees in these problem solving methodologies. [PUBLICATION ABSTRACT]

Full text:

CASE DESCRIPTION

The field of project management is experiencing a burgeoning amount of growth in its applications. Companies apply innovative management methodologies such as project management in order to achieve rapid and continuous improvements in their operations. Selecting an appropriate set of operational improvement projects out of a potential pool of projects is a difficult task. How can companies select an optimum portfolio of projects?

The primary subject matter of this case study is concerned with objective evaluation of candidate projects that will address corporate business objectives based on a quantitative method. Projects can be objectively evaluated based on a quantitative method such as Six-sigma, which is defined as "a disciplined, data-driven approach and methodology for eliminating defects in any process, from manufacturing to transactional and from product to service" (www.isixsigma.com). The secondary subject matter for this case study is the project selection based on more a qualitative or abstract method utilizing the mapping process. The balancing act between quantitative methods and qualitative methods is highlighted in this case study.

This case study is appropriate for senior level undergraduate students and/or graduate level students while taking an operations management course. The case is designed to be used in conjunction with two to three hours of in-class preparation followed by approximately four hours of outside classroom analysis, discussion, and report write-up. In-class topics can include project selection models, project categorization criteria, and the project portfolio process.

CASE SYNOPSIS

This case describes a systematic way of categorizing, evaluating, and selecting projects using information from a leading automotive electronics component manufacturer. The projects discussed in this case study are based on real life projects. However, the company name, project names and financial numbers are modified in order to protect the company's identity.

This case study describes seven different project proposals that were presented to the company's management staff for evaluation and selection. Five projects are to be selected which will be sponsored by the plant's top management. The projects come from multiple disciplines and department areas and are affecting the overall company performance. The company's performance is judged on their performance in reference to the following areas: scrap cost, first time quality, operational effectiveness, and assembly plant returns. The candidate projects are evaluated using both numeric and non-numeric project selection models to determine where the management team for this automotive electronics manufacturer should allocate and focus their efforts for the upcoming year. Several teams composed of personnel that have been trained in Six-sigma methodologies are available to begin addressing these issues immediately and will be supported by current trainees in these problem solving methodologies.

INSTRUCTORS' NOTES

1. For financially distressed companies, project selection based on financial analysis such as the Net Present Value (NPV) and payback period may receive higher priority. NPV of free cash flows is calculated using 8% discount rate. Project payback period are in the unit of years. Projects are ranked based on NPV as follows:

2. As a quantitative approach, the weighted scoring method can be used. This method is an objective method in that it overcomes possible bias of a decision maker. In this case, the model uses four different criteria to evaluate the proposed projects. Depending on current performances, numeric scores of 1 to 5 are assigned to each criterion. These numeric scores and performance ranges for each criterion can be generated by the cognizant and experienced personnel.

The next step involves applying a weight to each performance metric. Typically, these weights are determined by the organization's decision making team members. Numeric weights reflect the relative importance of each of the individual performance criterion. Below, the weights applied to each criterion are shown with greater weight being allocated to a factor, which the decision makers decide as more critical. For this example, scrap cost was given the highest weight of 0.5 due to its biggest impact on the quality performance.

The results of the weighted scoring method are shown above. The top ranked proposal based on weighted scoring method is "Surface Mount Component." Two main drivers of this project receiving the highest rank are scrap-cost and assembly-plant-returns due to their higher weights. Because of the relatively lower weights assigned to first-timequality and operational-effectiveness, "Final Test Failure" is ranked at 6th place even with the high scores on the other two criteria.

Although weights are provided in this case, instructors can generate a new set of weights by involving students as well. A typical example, I provide in my class is analyzing what issues are important for choosing a MBA program. Let's say a local college students are deciding where to pursue their MBA degree. Through a brain storming, four issues are identified as important issues to consider: cost, distance, brand name and quality. Create a table with identified issues on the first column and on the first row as follows:

Suppose a total of twenty students are deciding on relative importance (weights) of these four issues. Diagonal cells (cells 1 ,6, 1 1 and 1 6) do not require voting as they represent same issues. For the upper triangular cells (2, 3, 4, 7, 8 and 12), have the students vote (by raising hand) whether they consider "row" issue is more important than "column" issue. For example, cell 2 compares "cost (row)" and "distance (column)" and say 15 students thought "cost" was more important than "distance." Record voting counts (15 for cell 2) and keep voting until all upper triangular cells are filled. Lower triangular cells (5, 9, 10, 13, 14 and 15) do not require voting as they are complementary to upper triangular cells. For example, cell 5 is 20 (total number of students) - cell 2, and cell 9 is 20 - cell 3. Once all cell values are filled (other than diagonal), sum each row values (shown as "Row total" below). Divide each "Row total" by "Grand total" to obtain weights.

3. There are numerous criteria which can be used to categorize the projects (i.e., financial impact, existing capability, synergy with other projects, company image, employee moral, involved risk, potential learning, etc.). Using "amount of product change" and "amount of process change" can be one of such criteria. Based on candidate project descriptions provided, students are expected to map (categorize) the projects. Based on students' interpretation, a project can be categorized somewhat differently (i.e., "Platform" instead of "Derivative"). However, it should not be categorized too differently (i.e., "R&D" instead of "Derivative"). Our interpretation of proposed project descriptions is given below.

Instructors can elaborate on this concept by using different set of criteria as the axes for the map. For example, "Net Present Value (NPV)" and "Rate of Return (ROR)" can be more appropriate and interesting choices for an organization that is focusing on a greater financial return. How about "Probability for FDA approval" and ""Return on Investment (ROI)" for a biomedical development company? Further, different names for categories can be selected instead of the ones used for this case.

4. From above analyses, the following table summarizes proposed projects.

A "Sacred Cow" proposal (i.e., one favored by the top management; in this case, Final Test Failure) can be selected when a non-numeric approach is used to rank the projects. Since the "boss" suggests the project, the team might pre-conclude that this is the best project to select. Charles Garcia needs to be careful that he does not offer any favoritism towards a certain project during the review phase.

As a mature manufacturing operation, AEG - San Antonio may want to focus more towards Derivative and Platform projects. Breakthrough and R&D projects might require too much change from existing system and capability, which may involve more risk taking. While, "Case Defect" project has the highest NPV, it is a R&D project and thus not recommended. The "Surface Mount Case" project ranks highest on the "Quality Weight Score" and second in NPV. Although it is categorized as a Breakthrough requiring a lot of change from existing status, such high ranks on the other two criteria would justify this project.

Using the project map, comparing a project from one category to projects from other categories should be discouraged. A project should be compared with other projects in the same category. For example, our mapping process (based on "product change" and "process change") yielded four different categories. A Derivative project requires less amount of risk and requires less amount of change from existing capabilities. This will favor a Derivative project over projects from other categories.

Based on analyses from above, the following five projects are recommended. These projects will cost a total of $3,250,000, leaving $250,000 (about 7% of total budget) as the contingency fund. Total NPV for these five projects is $306,950.

Subject: Project management; Operations management; Models; Automotive parts; Electronics manufacturing services; Case studies

Location: United States--US

Classification: 8650: Electrical & electronics industries; 5310: Production planning & control; 9190: United States; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 4

Pages: 61-66

Number of pages: 6

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables Graphs

ProQuest document ID: 216301880

Document URL: http://search.proquest.com/docview/216301880?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 3 of 100

BUSINESS ETHICS, BUS 3333: COMMUNITY ORGANIZING RURAL NEBRASKA CASE

Author: Hrncir, Theresa J; Metts, Stephanie

ProQuest document link

Abstract:

Unlike Dragnet, the detective show, more than the names of the innocent have been altered in this case based on facts, people, and events from a real nonprofit organization. The facts and events came to light when the organization's respective state auditors issued findings from a compliance audit. While nonprofit organizations may receive funds for promoting social welfare as in this case, the ethical and business issues are common to ethical dilemmas, business structure and related business issues for all business organization forms. [PUBLICATION ABSTRACT]

Full text:

CASE DESCRIPTION

This case focuses on the business ethics topic of corporate governance in a nonprofit organization with issues involving conflicts of interest, organizational politics, and lack of internal controls. Secondary issues focus on accounting problems associated with accounting controls of the organization. The case has a difficulty level appropriate for an undergraduate junior level Business Ethics or Accounting course. It is designed to be taught in one to two class periods with the requirement of three to six hours of outside preparation by students.

CASE SYNOPSIS

Unlike Dragnet, the detective show, more than the names of the innocent have been altered in this case based on facts, people, and events from a real nonprofit organization. The facts and events came to light when the organization's respective state auditors issued findings from a compliance audit. While nonprofit organizations may receive funds for promoting social welfare as in this case, the ethical and business issues are common to ethical dilemmas, business structure and related business issues for all business organization forms.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

The three questions included with the case are very general in nature to allow the instructor flexibility in teaching the case. Suggested teaching approaches include assigning teams to evaluate an aspect of the case, setting up team competitions to find multiple issues, asking student to prepare a SWOT analysis of the ethical issues, using the case as a summative learning tool for a business ethics class, and using case for an essay final exam.

The instructor may choose to focus on actions of individuals, on organizational issues, on general and internal controls, or on accounting issues. Student teams could assume the role of consultants or specialists and provide a report or list of recommendations to management on one or more kinds of issues.

POSSIBLE SOLUTIONS

The following solutions represent some of the key issues involved in the case. Other solutions to the case may be possible as well.

Issues with corporate governance

Conflicts of interest policy

Jefferson, the Executive Director of CORN appointed five members to the CORN Board.

Solution:

President or CEO should be involved in the board member recruitment process but the selection should not be under his or her control.

President's appointees also serve as the Executive Committee which possesses the powers to change charters, negotiate loans, approve purchases, fire or hire, and to approve bonuses.

Solution:

No subgroup should possess the power of the full board. Either there is a violation of the organization 's incorporating documents or there are flaws in those documents. The former is more likely given the governmental oversight of this organization.

The full Board of Directors manages the organization and has the legal and ethical obligations to do so.

The organization should adopt a formal code of conduct or ethics that detail conflict of interest policies and procedures as they apply to senior management, officers, and the board.

Organizational failure:

Organizational failure occurs by Jefferson appointing the members to the Executive Committee.

Solution:

More restrictions should be placed on the Executive Committee in terms of defining the committee 's authority.

Organizational failure also occurred because the Board of Directors responsibilities were not clearly followed to implement financial oversight.

Solution:

The Board should meet on a regular basis and thoroughly review a complete set of the organization 's financial statements.

Subjective conflicts of interest

Jefferson appointed James Whitecloud and others to the Corn Board of Directors and the Executive Committee. Whitecloud recommended his former teacher Dr. Karney to the Board.

Solution:

Jefferson should not make appointment to the Board of Directors. The Board has the responsibility to manage an organization. The Board delegates that responsibility to the Chief Executive Officer not the other way around.

James Whitecloud, a member of the Corn Board of Directors and the Executive Committee socializes with Jefferson and Adam Jackson on the golf course. A conflict is present because every member of the Board of Directors is responsible for directing, supervising, and placing limitations on the Executive Director. Mr. Whitecloud' s independence in regards to evaluating the performance of both Jefferson and Adam Jackson can be questioned given the fact that they have been seen socializing.

Solution:

The conduct of both Jefferson and Jackson may be called into question with the current Executive Committee powers. Their actions could be viewed as political tactics of ingratiation, associating with the influential, and even creating obligations. While not necessarily illegal, these types of actions can be viewed as unethical. The organization might adopt a formal code of conduct or ethics that detail conflict of interest policies and procedures as they apply to senior management, officers, and the board.

Establishing favorable relationships:

This occurred when the Executive Director of CORN, Jefferson, appointed Lucas Wilson to the position of accountant even though Wilson was not educated in nor had any experience in accounting.

Creating obligations/Associating with the influential:

This occurred when Jefferson hired Ms. Sarah Adams for the public relations position as a "favor" to the Nebraska Senator realizing it could lead to favorable political treatment in the future.

Solution:

The promotion and hiring of both people appear to be questionable and may be in violation of Equal Opportunity Laws if other candidates were overlooked for these positions. The organization should adopt hiring procedures and a formal code of conduct or ethics that detail conflict of interest policies and procedures as they apply to senior management, officers, and the board.

ISSUES IN GENERAL OR INTERNAL CONTROLS AND IN ACCOUNTING:

Lack or inadequate general business controls:

Employees were given corporate credit cards and supporting documents were not required for payment of receipts.

Solution:

Safeguarding assets, such as the disbursement of cash for business expenses, is a basic internal control issue for any business. Employees should only be given access to corporate credit cards for necessary travel expenses. All other expenses should be paid for by the employee and reimbursed from the organization after sufficient documentation is provided. There should be a review process to insure that receipts are submitted for every purchase.

Mr. Wilson lacked accounting experience and the related knowledge of internal control procedures. As Chief Executive Officer, Mr. Jefferson had an obligation to protect the organization's assets and establish general and internal controls to that end.

Solution:

Hire an accountant or a person who has experience in working with nonprofit organizations.

Solution:

Computerize accounting

Solution:

Change to an accrual basis of accounting

Solution:

Establish Internal Control by ensuring all transactions have adequate documentation, ensuring all transactions and are properly authorized, and ensuring all transactions proper recording of information in proper amounts, accounts, and period.

Auditor's list of problems:

The year-end adjusting entries for accounts receivable and payable were not made. The problem is this resulted in unrecorded revenues and liabilities and thus misrepresentation of the financial statements.

Solution:

Organizational internal controls should specify these. Close attention to detail should be paid to ensure that these adjusting entries are made prior to year-end.

The notes payable and the related assets were not included in liabilities and assets, but rather were incorrectly listed as miscellaneous expenses or lease expenses. The problem is this resulted in unrecorded liabilities and assets misrepresenting the financial statements.

Solution:

Again closer attention to detail should be made to ensure expenses and assets are recorded in the proper accounts.

A multimillion dollar bond issue, for which CORN is the fiscal agent, was not included in the records. The problem is this resulted in understated liabilities and revenue and thus the misrepresentation of financial statements.

Solution:

Closer attention to detail should be made to ensure all liabilities and revenues are properly recorded.

CORN operated on a cash basis. Payroll records have been improperly maintained at net amounts. The problem is that such a practice misstates employer payroll taxes and withholding for employee retirement, insurance, and other withholding amounts.

Solution:

Implement an accrual basis of accounting as well as a computerized accounting system.

The auditors point to a lack of general ledger to organize the accounting records. Their recommendation is to use this structured accounting process.

Solution:

Implement a computerized accounting system and an accrual basis of accounting to ensure that all accounting records are complete and that revenues and expenses are properly matched.

The Executive Committee has the ability to act on the Board's behalf. However, no minutes could be found to document actions taken by the Executive Committee. The auditors are concerned that the Board may not have sufficient financial information (see other notes) to adequately exercise its oversight authority. The full Board of Directors should consider changes to significantly limit the authority of the Executive Committee, but then this committee has the same powers as the full board.

Solution:

Additional restrictions in regards to the authority of the Executive Committee and the responsibility of the Board of Directors should be clearly defined and implemented. The Board of Directors should be supplied with a complete set of financial statements and meet on a monthly basis to review those statements for completeness and accuracy.

The intercompany receivables and payables between CORN and CARD were not recorded.

Solution:

Intercompany accounts should be reconciled monthly.

The records for CARD indicated that CARD funds were used to pay CORN bond obligations.

Solution:

CARD and CORN were separate entities. From a legal, accounting, and ethical standpoint this action should not have occurred. Each organization should be held responsible for its obligations. It is highly unlikely that CARD would be a guarantor on debts of CORN.

The note payments for CORN did not match supporting documents and most paid invoices were not defaced. If the invoices are not defaced upon payment, duplicate payments may be made.

Solution:

Payment should be made using the original invoices and the invoice should be defaced and marked with the date it was paid and with the check number it was paid with.

Credit cards for the organization had been issued in Jefferson's name. In examining the credit card receipts, $17,433.21 were questionable as expenses for CORN. These questionable items included travel and lodging expenses, meals, office supplies, clothing, gifts, books, antiques, and some unidentified. All directors have corporate credit cards and are supposed to submit receipts prior to CORN'S payment.

Solution:

Corporate credit cards should only be supplied to employees for necessary travel expenses. All other expenses should be paid for by the employee and reimbursed after adequate documentation is provided.

The payments to taxing authorities were made late.

Solution:

Install a computerized accounting system to track when payments are due to prevent untimely filing of tax payments.

Four of five nutrition program reports were submitted late.

Solution:

Find the reason for the late submissions. Was it due to human or internal control error? If it was human error then educate, penalize or replace the human. If the late submission was a system error install a computerized accounting system to track when reports are due to prevent untimely filing of reports.

Subject: Business ethics; Corporate governance; Nonprofit organizations; Conflicts of interest; Case studies

Location: United States--US

Classification: 2410: Social responsibility; 9540: Non-profit institutions; 9190: United States; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 4

Pages: 67-74

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 216301852

Document URL: http://search.proquest.com/docview/216301852?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 4 of 100

PURAC ENVIRO-FILTER COMPANY

Author: Sjolander, Richard; Eppright, David

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Abstract:

The PURA C Enviro-Filter Company is a small manufacturer of air filters located in southern Florida, USA. Diana Page, the firm's marketing manager is in the process of determining her target price for the upcoming year for their most profitable product, the F-18 filter. Just as she was finalizing her recommendation, one of her salespeople approached her with the possibility of entering into a contract for a distributor branded sale to Russia. This would be a new market for her company. The price offered by the Russian mass merchandiser is much lower than that charged for branded PURAC filters in the domestic market. This new market opportunity complicates Diana's decision process. She must decide at what price to offer her goods for sale at home, and consider the relative advantages of the new offer presented by the foreign market proposal. She must decide the probably effect of these additional sales on the firm's profitability and what conditions to negotiate with the Russian company if PURAC decides to accept their offer. [PUBLICATION ABSTRACT]

Full text:

CASE DESCRIPTION

The primary subject matter of this case is the pricing of consumer goods in International Markets. Secondary issues include price discrimination by small firms in foreign markets; product differentiation in international markets; branding and price discrimination. This case has a difficulty level of 3-4 and is targeted at business students in a first course in international business or international marketing. The case can be used either as a functional case on pricing in the international environment, or as a study in exporting. One hour of class time should be sufficient to handle the case discussion and students should budget 2-3 hours of time for case preparation.

CASE SYNOPSIS

The PURA C Enviro-Filter Company is a small manufacturer of air filters located in southern Florida, USA. Diana Page, the firm's marketing manager is in the process of determining her target price for the upcoming year for their most profitable product, the F-18 filter. Just as she was finalizing her recommendation, one of her salespeople approached her with the possibility of entering into a contract for a distributor branded sale to Russia. This would be a new market for her company. The price offered by the Russian mass merchandiser is much lower than that charged for branded PURAC filters in the domestic market. This new market opportunity complicates Diana's decision process. She must decide at what price to offer her goods for sale at home, and consider the relative advantages of the new offer presented by the foreign market proposal. She must decide the probably effect of these additional sales on the firm's profitability and what conditions to negotiate with the Russian company if PURAC decides to accept their offer.

INSTRUCTORS' NOTES

Case Summary

Diana Page, marketing manager for PURAC Enviro-Filter Company, is in the midst of determining her pricing strategy for the F-18 filter for the coming year. She must perform certain calculations, for which all numbers are indicated in the text of the case to determine break even at the various possible prices and the profit maximizing price for the firm. Her first task is to fill in a table of cost and revenue figures for the sale of branded F-18 filters in the U.S. market and determine the optimal profit maximizing price for the firm. Then she must further analyze the effect of a proposed sale of additional filters in the Russian market as dealer branded filters. The additional sales are, of course, at a much lower price than would be possible in the home market and forces the students to explore the idea of marginal cost pricing utilizing price discrimination between this new market and her core market at home.

The case provides an opportunity for the student to apply knowledge of price discrimination in markets, and to explore some positive effects of international sales on the bottom line of the company.

The case is entirely fictional and was written to assist students in understanding some of the complexities of international marketing, branded vs. unbranded products, and price discrimination between markets.

Earlier versions of this case were published:

In the 2006 Proceedings of the Society for Marketing Advances: Richard J. Sjolander and David Eppright, "PURAC Filter Company: Pricing in the Face of Uncertainty," Advances in Marketing: Linking Organizations and Customers, William J. Kehoe and Linda K. Whitten, editors. Mobil, AL: Society for Marketing Advances, 2006, pp. 89-91, and

In the Fall, 2007 Proceedings of the Allied Academies: Richard J. Sjolander and David Eppright, "Purac-Enviro Filter Company: Pricing in the Face of Uncertainty: A Preliminary Analysis," International Academy for Case Studies Proceedings, 2007, pp.57-60.

CASE QUESTIONS

A. How would one characterize the nature of demand in the U. S. market? They discuss the market in terms of the four types of market demand structures (competitive, monopolistic competition, oligopoly, monopoly) and identify implications for PURAC Enviro-Filters in terms of the use of the various marketing mix variables in the market under each type of competitive situation. Please develop this analysis. Include in your discussion of each of the types of demand structures, as well as the various characteristics of the market for specialty filters that affect your decision as to the nature of the market (type of competitive environment

As there are four domestic competitors in the industry, this firm could be competing in either a monopolistic competition demand structure, or an oligopoly demand structure, judging strictly on the basis of numbers of competitors. It is clearly not a competitive market with only four firms controlling the entire market, and, at the same time this is far too many firms to consider the industry a monopoly.

Looking closer at the statements in the case, we note that the products being sold by the 4 firms are closely related, but can be assumed to be at least somewhat differentiated at the same time. The demand curve in this market, while downward sloping to the left, as expected, has a relatively inelastic range at the current price. This is especially noticeable if one considers lowering the price from the current optimal price of 7 dollars. This analysis should lead students to choose an oligopoly as the expected market structure, though many will probably choose monopolistic competition, too. The products may well be classified as heterogeneous shopping goods on the basis of the demand schedule slight differentiation among products; i.e., they are close substitutes but not perfect substitutes so demand cannot be perfectly elastic.

This firm would not be a monopoly, as there are other firms involved in the industry. Finally, it would not be involved in a perfect competition demand structure because the firm is experiencing profits. The firm is also setting its own price. In perfect competition, the firms are price-takers, not price-setters.

B. Recreate the table she calls her forecasting spreadsheet, calculating the missing data points. This information should prove critical in answering the questions faced by PURAC Enviro-Filters in terms of its decisions in its markets.

C. Why might Diana be interested in knowing the break-even quantities at the various proposed prices? What does this information tell her?

The break-even points show the volume that must be sold at each price to cover all fixed and variable cost. Exact sales can not be forecast. Thus, break-even gives us an idea of the minimum quantity that must be sold to not lose money.

D. What is the profit maximizing volume for PURAC Enviro-Filters to sell under its own brand name in the U. S.? At what price should they sell specialty filters, and what is the expected profit?

The profit maximizing volume for PURAC to sell under its own brand name in the U.S. market would be 1 ,600,000 units, at a price of 7 dollars per unit. This would generate an expected profit of $ 1 ,900,000.

E. Should PURAC Enviro-Filters try for the Russian sale? Back up your answer with analysis (meaning that specific numbers and reasoning should be shown).

Yes, PURAC should try for the Russian sale. This is the correct answer for several reasons.

First, the firm is already covering its fixed cost in the domestic market and can be assumed to produce the additional units in its current facility without incurring additional fixed cost.

Second, producing 200,000 additional units will allow PURAC to lower its current variable cost. Producing 200,000 additional units will make the total production equal to 1,800,000 units, a level which falls into the 2.35 dollar variable cost range, instead of the 2.50 dollar variable cost currently experienced. This means that for each of the 1,600,000 units sold in the U.S. market, the firm will lower its cost by 0.15 dollars per unit due to the Russian sales.

Third, the additional (marginal) cost of producing the additional 200,000 units will be the variable cost incurred = 2.35 dollars perunit plus the 0.50dollars per unit in additional shipping and insurance cost. 2.85 dollars perunit is much less than the proposed selling price of 3.25 dollars.

F. What would the bottom line effect be of the additional sales be on revenues, costs, and profits from the units sold by PURAC Enviro-Filters both under its own brand and the dealer brand in each country?

G. What sorts of guarantees would PURAC Enviro-Filters Company want from the retail chain purchasing the filters for sale in Russia? Please be specific as to the sorts of contractual arrangements PURAC might want from the Russian company that would make the eventual contract more attractive to the U.S. company and the reasoning behind your various suggestions.

The main guarantee that PURAC Enviro-Filter would like to receive from the retail chain purchasing the filters for sale in Russia would be that the buyer would not allow resale of these filters in the U.S. PURAC would not be able to price discriminate between the two countries if this were to happen. A second condition might be that the Russian company would not reveal the name of the manufacturer of the filters. A third condition could be that the Russian purchaser would only sell filters in the Russian market, or even in a certain area ofthat market.

H. What might lead the Russian buyer to offer to sign a contract for the filters in U.S. dollars instead of Russian rubles? Discuss how this affects the risks for each company.

There are many answers to this question - none of which appear in the text of the case. One common suggestion is that the Russian buyer sees this as leverage in extracting the extremely low price they are offering to pay for the filters. A second could be that they are aware that PURAC has not dealt internationally, and they see this as something they can offer to make the deal less risky for the American firm. You will note that these two potential answers are quite similar. They both revolve around reducing risk for the seller something for which we would assume the buyer would want to be compensated.

Subject: Consumer goods; Pricing policies; Air filters; Case studies; International markets

Location: United States--US, Russia

Classification: 7000: Marketing; 1300: International trade & foreign investment; 8650: Electrical & electronics industries; 9130: Experimental/theoretical; 9176: Eastern Europe; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 4

Pages: 83-88

Number of pages: 6

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables

ProQuest document ID: 216283649

Document URL: http://search.proquest.com/docview/216283649?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 5 of 100

McDOLLAR'S IN MOTHERLAND

Author: Barkacs, Linda L; Barkacs, Craig B

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Abstract:

This negotiation exercise is set in the fictitious nation of Motherland. The negotiation helps students learn to negotiate in a more integrative fashion. Because the exercise is not scored quantitatively based on outcomes, the situation can lead to the use of creative collaboration in an unexpected venue. The marriage of McDollar's, which is the metaphoric embodiment of capitalism, to a struggling post-communist state seems counter-intuitive by its very nature. The odd-couple dynamic in this negotiation exercise, however, actually creates possibilities that can be beneficial to both parties. In addition to testing students' understanding of best alternative to a negotiated agreements, the McDollar's negotiation challenges students to decide between two drastic extremes. On the one hand, they will be tempted by profit motives and corporate advancement. On the other, they have the chance to promote social welfare among an impoverished people.

Full text:

CASE SYNOPSIS

This case is based in a very general way on the circumstances surrounding McDonald's efforts to begin operations in the former Soviet Union. As George Cohen, the McDonald's executive charged with trying to gain a foothold in the Soviet Union, stated:

We learned to treat frustration and delay like natures force of gravity. Remember, this was the height of the Cold War. It was 1976. Brezhnev was in power. It was the "Evil Empire." It was Karl Marx in one corner and Adam Smith in another corner, squaring off. There was no happiness, everything was gloomy. And here we were, wading in. We, the epitome of capitalism, mother and apple pie, were trying to get into the Soviet Union during the height of the Cold War (Moon and Herman, 1982).

This negotiation exercise is set in the fictitious nation of Motherland. Motherland certainly resembles Russia, but the use of the country's name directly in the case is avoided to reduce student tendencies to stereotype real people and to avoid potential errors introduced by students who have knowledge of Russian culture. Thus, Motherlandian culture is intended bear some similarity to Russian culture (and in fact may be portrayed, for purposes of this exercise, as what some may regard as stereotypical Russian culture -fairly or not- on steroids!), but Motherlandian culture can only be truly explained by the materials in this exercise.

The negotiation helps students learn to negotiate in a more integrative fashion. Because the exercise is not scored quantitatively based on outcomes, the situation can lead to the use of creative collaboration in an unexpected venue. The Cohen quote above illustrates a common perception of Cold War relations with Russia before the fall of the Soviet Union. The marriage ofMcDollar's, which is the metaphoric embodiment of capitalism, to a struggling post-communist state seems counter-intuitive by its very nature. The odd-couple dynamic in this negotiation exercise, however, actually creates possibilities that can be beneficial to both parties. In the case of McDonald's, these possibilities were beneficial to both parties. Thus, this negotiation puts students in an adversarial mindset, which they must work beyond to reap the collective benefits of an agreement. We hope that the students will be drawn toward this understanding through analyses of their own best alternative to a negotiated agreement (BATNA) because both sides lose if the parties fail to reach an agreement.

In addition to testing students' understanding of BATNAs, the McDollar's negotiation challenges students to decide between two drastic extremes. On the one hand, they will be tempted by profit motives and corporate advancement. On the other, they have the chance to promote social welfare among an impoverished people. This is an internal conflict that those on the McDollar's side of the negotiation are especially likely to encounter because, as Americans, it is remarkably easy and culturally predictable to lapse into greed-driven competition. This universal tension between public good and private gain is played out at both the individual level and the broader societal level in this negotiation exercise, given the situational conflict between communism and capitalism, collectivism and individualism, and every other difference between Soviet and U.S. culture. This case is built on a bargaining position template developed by Barkacs and Barkacs (2004).

INSTRUCTORS' NOTES

This negotiation is best done as a team versus team simulation between members of the Motherlandian Government and members ofMcDollar's corporate Motherlandian board. As it is an international negotiation with the American team engaging in conversation with individuals of a radically different culture, they should be knowledgeable about Motherlandian society and business practices. There will undoubtedly be some uncomfortable periods during the simulation as both sides get accustomed to the other side's culture. Students should be well aware of the Motherlandian cultural practices and superstitions that are listed on the provided cultural sheets.

When the students begin to get into negotiation issues, there are a number of issues that each side may approach in an integrative manner. Let's look at each issue to see the possibilities.

Issue 1 - Menu Changes:

Menu consistency is the cornerstone of the McDollar's dining experience, and is crucial to Dunn and his/her board. While Kasiminov may prefer that some slight changes be made or food selections added, this issue is not all that important to the Motherlandian government. This issue was basically created as ammunition for the Motherlandian side to give as a concession to the American side. A win-lose situation would be if both sides solely accepted one menu or the other; the American menu or the Motherlandian menu. Students have the opportunity to be creative in menu changes so that both sides can be pleased.

Issue 2 - Local Sourcing:

This is one of the issues that offers the most possibilities for an integrative deal. It is incredibly important to Kasiminov that all of the capital and infrastructure improvements are made to his/her country in order to benefit his people. Likewise, sourcing locally can be very beneficial to Dunn in the long run. Dunn, however, will have to see past the hurdle of the high start-up costs associated with this.

In the actual case, all of these improvements were in fact made, with a cost of around $45 million American dollars (which included roads, the McComplex, and farmer education, etc.), all which have been incredibly effective. Students can also be very creative here in the ways in which they choose to train farmers and construct infrastructure. The American briefing warns Dunn that Jay Brock will be angered by delays, but he has already incurred fourteen years of waiting; Jay Brock is not about to lose this deal over simple start-up costs, which he probably expects.

In actuality, corporate McDonald's flew in European supply specialists including a Dutch cucumber specialist for making pickles, a German meat expert, and their European potato supplier. The benefits of local sourcing kept costs low and consistency and quality high for McDonald's in the long run, maintaining the excellence of their products. Likewise, the farmer training and infrastructure built Russian farms around Moscow not only into steady suppliers for McDonald's, but into incredibly profitable business which helped to feed the starving masses (which is mutually-beneficial pie expansion).

Issue 3 - Hire Locally:

This is an important issue for both sides, but one that we do not feel should be difficult to resolve. Kasiminov obviously desires Motherlandian employees and management to boost his economy, and Dunn will want to maintain autonomy with American managers. The training costs are thrown out as a red herring, but truly are largely insignificant. An optimal outcome for both sides would be to train well educated locals at Hamburger University, with McDollar's picking up the tab, which will be a small expense when tacked on to the McComplex costs. The issue of financing the training can be used by the American side as a potential bargaining fodder for other, more important issues. In reality, all Russian employees were used, and made up the most amazingly competent and over-educated staff of any McDonald's in the world (e.g., McDonald's employed a top-level rocket scientist to run the Dunn).

Issue 4 - Ownership

This issue is non-negotiable for Kasiminov and the Motherlandian side. They will not be able to take lower than 51% ownership, and would like more. This will be a strong conflict. We have included this issue so that the Americans will actually feel all of the sacrifices that are sometimes necessary to avoid a terrible BATNA. In reality, the Russians and the city of Moscow ended up owning 51% of the ownership of the venture; in 1998, however, McDonald's had renegotiated their stake back up to around 80% ownership.

Issue 5 - Location:

It will be easy and clear to both sides that location one, in Pushpin Square, is the best area to locate the venture for both parties. It will be expensive for the Americans to obtain the site, but well worth it; it will be a good site for the Motherlandians as well, but much more difficult to acquire by Kasiminov. The Minister of Commerce, however, will be able to use this as leverage to get more out of the American side on other issues; if he is able to obtain the real-estate.

Issue 6 - Currency:

Using Rubles only is a substantial risk to the Americans with the fears of devaluation and the impossibility of repatriation. So they will and should do everything in their power to fight for dual lines and dual use of Rubles and hard currency. On the other hand, Kasiminov will be a staunch supporter of Rubles only for the McDollar's venture, as will the general Motherlandian populace, who will be the main customers. This is a very important issue, and it is somewhat of a lose-lose situation for the American side. But as long as the company can operate self-sufficiently with Motherland (which forcefully implicates the need for the McComplex), repatriation will not be necessary and choosing Rubles only will show good faith on the part of the Americans, which will gain the respect of Kasiminov and the Motherlandian commoners. In reality, McDonald's Russia accepted Rubles only, which gained them the respect of the Russian people, but was faced with economic crisis with the devaluation of 1998.

Cultural Issue - A Cultural Trap for U.S. (McDollar) Negotiators.

Herb Cohen's book, You Can Negotiate Anything, contains a chapter titled "Winning at all costs... Soviet style," which lists and describes six particularly hard bargaining - and incredibly unproductive - negotiating techniques.

The summary version of those techniques has been adapted and included in the negotiation packet for U.S. (McDollar) negotiators. The expectation is that McDollar negotiators will stereotype their counterparts and wrongly impute to them Soviet style negotiating techniques. The reason this is false attribution on the part of U.S. (McDollar) negotiators is because Motherlandian negotiators are being given the same information, except they are explicitly told that the Soviet style is by no means necessarily the Motherlandian style and, in fact, because of the horrible Motherlandian BATNA (no deal, economic stagnation or decline) Motherlandians should be particularly motivated to bargain in good faith (as they are explicitly told to do) in order to strike a deal.

The intentionally constructed irony in this exercise is that on issues on which Motherlandian negotiators may state they have no authority, for example not being able to pay for McComplex or not being able to go below 51% ownership, the truth is they really do have no authority - and their role information packet says exactly that. U.S. (McDollar) negotiators, however, are likely to convince themselves that any reference to "authority" by the Motherlandian negotiators is nothing but a Soviet style tactic and they may wrongly become cynical and distrustful, i.e., a self-fulfilling prophecy will take place. Some of the Motherlandian positions may strike U.S. (McDollar) negotiators as extreme, but they really are not extreme given the weak state in which Motherland finds itself.

If the parties lose sight of their BATNAs, become too competitive, and forget where they are in the negotiation process - it's been going on for fourteen years - they will reach an impasse, which both parties should understand is a disaster. Given that we have the real world case to fall back on during the debrief, it can credibly be explained that in the real world McDonald's satisfied almost all of the Soviets' needs not because the U.S. was weak during the negotiations, but because McDonald's fully understood that accommodating legitimate Soviet needs was the only way the deal could work - and, as history has borne out, the agreement was a success in the real world for both sides.

NEGOTIATION TERMS (FOR INSTRUCTOR'S USE IN DEBRIEF)

BARGAINING ZONE: The bargaining zone is also known as the "settlement zone."

BATNA: A negotiator must determine his/her Best Alternative to a Negotiated Agreement. This is so important that it has been made into an acronym. A BATNA is the point at which a negotiator is prepared to walk away from the negotiation table. A negotiator should be willing to accept any set of terms superior to their BATNA. Moreover, a negotiator should reject any set of terms that are worse than their BATNA (Fisher, et al. (1991), Thompson, 2001).

EXPANDING THE PIE: Expanding the pie is a method used to create integrative agreements through the use of integrative negotiation. It is the opposite of Pie Slicing, also known as Distributive Negotiation or Fixed Pie Negotiation, a faulty perception that the parties* interests are completely opposed. Expanding the pie means identifying trade-offs and avoiding compromise (Thompson, 2001).

INTEGRATIVE NEGOTIATION: Integrative negotiation is also known as "win-win" negotiation. Common misperceptions are that win-win negotiation means compromise, an even split, feeling good or building relationships. What win-win really means is that both parties are better off than if there were no agreement. The very best integrative outcome - an optimal agreement - means all creative opportunities are exploited and no resources are left on the table. (Thompson, 2001).

AUTHORS' NOTE

This case was inspired by and is a modification and expansion of a case entitled "McDollars in Mother Russka," a case originated by former University of San Diego undergraduate students Nicholas M. DeWeese and Zachary G. Puca. The case is based loosely based on the actual case study of McDonald's in Russia and was structured based on the bargaining template (Smart Growth for St. James) produced by Linda L. Barkacs and Craig B. Barkacs.

Subject: Negotiations; Collaboration; Capitalism; Case studies

Location: Russia

Classification: 1120: Economic policy & planning; 9176: Eastern Europe; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 1-6

Number of pages: 6

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: References

ProQuest document ID: 216294483

Document URL: http://search.proquest.com/docview/216294483?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 6 of 100

SOUTHWEST AIRLINES 2007

Author: Box, Thomas M; Byus, Kent

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Abstract:

Southwest Airlines has long been cited in Business Strategy classes as an exemplar of Porter's Low Cost Leadership strategy. Through fiscal year 2006, they have enjoyed thirty five years of uninterrupted profitability. In 2007, they began considering several fundamental changes in their long-term business model to address the realities of increased competition, rapidly-escalating fuel costs and the threats of world-wide terrorism. New competition -- particularly JetBlue and ATA have modeled their operations on the original "Southwest model." The most common complaint about Southwest Airlines has been its boarding policy. In 2007, Southwest began two experiments in seating -- the first in San Diego -- with assigned seats and later a differential pricing scheme whereby those willing to pay $10-$30 more per ticket were allowed to board first. Southwest is also considering the possibility of extending its route map to include large cities in Canada, Mexico and the Caribbean.

Full text:

INSTRUCTORS' NOTES

Learning Objectives

This case is intended to teach and reinforce various aspects of strategic analysis and choice including internal and external analysis, strategic choice as a function of SWOT analysis, implementation of a Low Cost Leadership generic strategy, utilization of Financial Ratio Analysis and modification of strategy as time unfolds. The case can also be used to examine the potential benefits and risks of overseas expansion for a domestic concern.

Teaching the Case

We suggest that a practical starting point for this case analysis is a discussion in class of mission, vision and SWOT analysis. This case illustrates how a Low Cost leadership generic strategy can be extremely successful in a very competitive industry - passenger airlines. Southwest has enjoyed profitability and continued growth for thirty five years. It should be noted that as of the date of the case (February, 2008) that Southwest Airlines' market cap was $9.42 billion while American Airlines, United, Delta, Northwest and Continental had substantially lower market caps.

When assigning this case for classroom discussion, we recommend that the instructor require the students to read the case, review a selection of the references and jot down answers to the discussion questions before class. Then, in class, we suggest that individual students assemble themselves into teams of three to four students and prepare consensus answers to the five discussion questions. The answers should be presented by a team representative. This allows about ten minutes for presentation of each team answer and works well in a traditional seventy five minute class.

Incase the instructor wants to make this a two-day discussion, other topics and questions can be included:

1. How can Southwest Airlines accommodate the rapid, recent increases in fuel costs? A recent technology advance is the addition of Boeing winglets (vertical fins) to the ends of the wings on roughly one-third of Southwest's fleet. See http://www.b737.org.uk/winglets.htm

2. What can any airline do about the implicit threat of shoulder-fired Stinger missiles? See http://busmess.timesonlme.co.uk/tol/busmess/mdustiy_sectors/transpoiVart^

3 . Beyond modified seating and boarding arrangements, what can Southwest do to attract larger numbers of business travelers? Consider the "bundle" of service surrounding the flight alone.

4. Can Southwest (today) incorporate elements of Guerrilla Marketing as Lamar Muse did in the airline's early history? See: http://www.gmarketing.com/

We recommend and use Kantola Productions' Stanford Executive Briefing Videos in class. One that is particularly relevant to this case is "Colleen Barrett: What Drives Phenomenal Success?" Colleen Barrett has been with Southwest since its beginnings and is today President and Corporate Secretary. Her video, in addition to enriching the discussion of Southwest Airlines, can also be used as a "bridge" device into a discussion of female executive leadership in modern organizations.

DISCUSSION QUESTIONS

1. Do a SWOT Analysis for Southwest Airlines and interpret your findings.

A SWOT Analysis is a procedure used to identify the important characteristics of the firm's internal environment and the salient characteristics of the external environment. Strengths are those things that a firm has (like human and physical resources) that can provide a competitive advantage. For Southwest, strengths would include its culture and people together with its systems and operating results. Weaknesses are just the reverse of Strengths and it is difficult to identify any significant weaknesses at this time. Opportunities and Threats are those things external to the firm that represent real opportunities for enhanced growth and profitability or threats to enhanced growth and profitability. Opportunities for Southwest would include the possibility of a route map expansion to include the Caribbean, Mexico and Canada. Threats obviously include competition from other low cost airlines and fuel costs.

Interpretation of a SWOT analysis means more than compiling a list of strengths, weaknesses, opportunities and threats. It means combining these factors in combinations that will lead to the creation of competitive advantages. For example, Southwest's fuel hedging procedures (a strength) combined with the current cost of aviation fuel (a threat) suggests that continued, active fuel hedging programs now is the time will be a major source of competitive advantages for the foreseeable future.

2. At the end of 2006, Southwest had a Current Ratio of 0.90. At the end of 2005, it was 0.94. Most introductory accounting texts suggest that the appropriate ratio is 2.0. Does Southwest have a serious problem with working capital management?

It is true that most introductory accounting texts recommend a Current Ratio of 2.0 or above. However, it is also true that some industries commonly exhibit Current Ratios of 1.0 or slightly less. This is true of both airlines and utilities. The logic here is that both of these industries have a steady, daily inflow of cash (revenues) and are thus able to manage their Current Liabilities easily. Two points are worth noting. Southwest's Current Ratio did decline from 2005 to 2006 and this is not a positive sign. Also, in order to interpret any financial ratio, we should consider changes over time and the specific ratios for the industry in which it participates. We recommend that students consult http://finance.yahoo.com for current financial ratios.

3 Southwest revised its boarding procedure in 2007 with the introduction of Business Select seating and boarding. Will this introduction generate expected revenue increases and resolve complaints about boarding policies?

The most commonly-heard complaint about Southwest Airlines has historically been its boarding procedures. Southwest has boarded customers in groups of thirty on a firstcome, first-served basis. There were no assigned seats and many people commonly lined up at the gate an hour before departure time to get a chance for a preferred seat. The reason for this boarding procedure was that it minimized the cost of boarding and facilitated quick gate turnarounds.

Beginning in late 2007, Southwest began offering Business Select seating on many flights which entailed an additional charge of $10-$30 each way and guaranteed those customers paying the additional ticket price the opportunity to be in the first group of customers boarded. Additional inducements for the extra fare include a free drink, more frequent flyer rewards and refundable, reusable tickets. Southwest estimates that Business Select will increase annual revenues by $100 million. Since Southwest flew roughly 1.1 million flights in 2006 this means that earning an additional $100 million in revenue would only be roughly $100 per flight. With an average load factor of 73%, this means about 5 people per flight would need to utilize business select to realize the revenue goal. On this basis the expected incremental revenue looks conservative.

The larger question though is "Will this reduce the complaints about boarding, in general?" One must realize that many passengers flying Southwest do so because of their historic low ticket prices. It is unlikely that many of these passengers would select business select and so the complaints may not be resolved.

4. Southwest is considering the possibility of adding Canadian, Mexican and Caribbean destinations to its route map. Comment on this possibility. Does it make sense? What are the "plusses and minuses?"

On the "plus" side of the question would be the opportunity to increase the number of flights but there are several potential "minuses." Flying to some airports in the Caribbean, Mexico and Canada would include the added complexity and cost of working with foreign governments. Access to gates at the airports can be a considerable expense and easy access to maintenance services adds an additional dimension.

In general, adding to the route map with destinations outside the United State would be a clear departure from Southwest' s traditional business model and, obviously, needs to be carefully considered. In additions to the concerns above, it would be appropriate to consider the distances involved and the passenger traffic volume that currently exists. For instance, travel is quite heavy between New York City and San Juan, Puerto Rico. The distance is approximately 1650 miles and well within the range of a 737-800. Other popular destinations in the Caribbean such as Nassau, the Virgin Islands and Jamaica are within the "reach" of a 737. One interesting potential route is the possibility that the United States government will relax travel restrictions to Cuba since Fidel Castro stepped down as President and there are more than 1 .2 million Cuban Americans living in the United States with relatives and friends still in Cuba.

5. Is Southwest more or less profitable than other major US airlines? Why?

Southwest Airlines has been profitable since its inception - 35 years ago - and continues that amazing track record today. No other major airline has matched this consistent performance and that is probably reflected in the market cap for the majors. At $9.5 billion, Southwest is more than double the other major carriers. It could be argued that Southwest's profitability reflects their Low Cost Leadership strategy but the real answer goes much deeper than that. Southwest has a business model that others have attempted to copy with limited success.

Important elements of the business model include the corporate culture, the dedicated, hard-working workforce and the ability to react quickly to new opportunities and challenges. Most important, perhaps, is the belief that Southwest is a fun place to work and the employee stock ownership program builds wealth quickly for those who stay with the airline.

Subject: Airlines; Case studies; Strategic management; Business models

Location: United States--US

Company / organization: Name: Southwest Airlines Co; NAICS: 481111

Classification: 2310: Planning; 9130: Experimental/theoretical; 8350: Transportation & travel industry; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 7-12

Number of pages: 6

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: References

ProQuest document ID: 216294572

Document URL: http://search.proquest.com/docview/216294572?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 7 of 100

THE BIG STINK AT DARIUS D'AMORE'S FRAGRANCES, INC.

Author: Armandi, Barry; Sherman, Herbert; Rowley, Daniel J

ProQuest document link

Abstract:

Derived from observation and field interviews, the case describes the plight of several workers within Darius D'Amore's Financial Administration Division and what incidents lead to their eventually filing a lawsuit against the firm. Rich Rogers, 43, had been with the company as a supervisor in the Corporate Credit Department since 1997. Mr. Rogers, a white male, had his Bachelor's degree in management and was enrolled in an MBA program at a local University. Rogers was fighting stage 4-lung cancer since 1996. His condition was not revealed to the Company or his co-workers until 1998. He made his condition known at that time because he needed to take a two-month leave to have bilateral lung surgery. Mr. Rogers, on several occasions, felt that he was passed over for promotion because of his illness and questioned why he was training his supervisors if he wasn't qualified for the job. When Rogers brought up several racial incidents to the head of the Division, Kevin Simmons, he was told to mind his own business and that no matter how hard you work, you will never be promoted. Several other racial and discriminatory incidents occurred that impacted and/or were observed by Les Ford, a 44 year old African American employee, and Jasmine Young, a 25 year old African American female. Their complaints to both management and human resource management went unheeded and eventually Rogers and Young were fired while Ford quit. The case ends with the three of them bringing a lawsuit against the firm. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

Traditional college students, unless they have had some amount of experience in the work force, are usually quite surprised to learn that even in these so called enlightened times that discrimination is alive and unfortunately quite well in corporate America.

There has been undeniable progress in many areas. Nevertheless, the evidence is overwhelming that the problems affirmative action seeks to address - widespread discrimination and exclusion and their ripple effects - continue to exist.

Minorities and women remain economically disadvantaged: the black unemployment rate remains over twice the white unemployment rate; 97 percent of senior managers in Fortune 1000 corporations are white males; (28) in 1992, 33.3 percent of blacks and 29.3 percent of Hispanics lived in poverty, compared to 11.6 percent of whites. (29) In 1993, Hispanic men were half as likely as white men to be managers or professionals; (30) only 0.4 percent of senior management positions in Fortune 1000 industrial and Fortune 500 service industries are Hispanic. (31)

Blatant discrimination is a continuing problem in the labor market. Perhaps the most convincing evidence comes from "audit" studies, in which white and minority (or male and female) job seekers are given similar resumes and sent to the same set of firms to apply for a job. These studies often find that employers are less likely to interview or offer a job to minority applicants and to female applicants. (32)

Less direct evidence on discrimination comes from comparisons of earnings of blacks and whites, or males and females. (33) Even after adjusting for characteristics that affect earnings (such as years of education and work experience), these studies typically find that blacks and women are paid less than their white male counterparts. The average income for Hispanic women with college degrees is less than the average for white men with high school degrees. (34)1

Discrimination also occurs in many forms and with various nuances. "Title VII of the Civil Rights Act of 1964 protects workers from employment discrimination based on their race, color, religion, sex, national origin, opposition to practices made unlawful by Title VII, or participation in Title VII proceedings."2 The Office of the High Commissioner for Human Rights of the United Nations noted that discrimination included discrimination based upon HIV/AIDS, religious intolerance, people with disabilities, migrant workers, xeophobia, and racial discrimination.3 The International Labour Office concurs with the United Nations and noted that many people suffer from multiple discrimination.4

The overriding mission of this case is to present to students several situations within a firm where discrimination is not only present but seems to be nurtured by higher levels of management and unchecked by human resource personnel. It is also a cautionary tale. A company may espouse equality, empowerment and management, but failure to train, execute and enforce these discrimination policies may have substantial repercussions, including major lawsuits.

RESEARCH METHODOLOGY AND DATA COLLECTION

The first author in this case interviewed one of the case characters (although not the subject of the discrimination) hence this research is subjective and phenomenological in nature.5 The writing style of the case therefore reflects a more colloquial style then one might find in a typical business case and tries to capture the points of view of the case characters. The information for this case was collected by the first author through personal reflection, observations, e-mails, and discussions with the key characters in the case as well as through secondary research. The quotes presented in this case are paraphrases of actual conversations between the case characters.

INTENDED INSTRUCTIONAL AUDIENCE AND PLACEMENT IN COURSE INSTRUCTION

This case was primarily developed for upper level undergraduates taking an introductory course in human resource management since the focus of the case requires students to make a determination as to not only whether racial discrimination occurred in the workplace but what if any actions could have been taken by management to prevent it. Specifically, the students would need to analyze the firms' employee's recent promotions relative to the Civil Rights Act of 1991. The case may also be employed in an introductory undergraduate management course (perhaps after the section on staffing), and a business ethics course.

The case should be introduced after students have read material on racial discrimination, employee recruitment, and the processing of employee complaints. Since the case covers numerous chapters in a typical HRM textbook, and has many confounding elements, it is recommended that the case be employed as a sectional or comprehensive case rather than an end-of-chapter case.6

In its secondary uses, the case could serve as an end of chapter case dealing with HRM issues in an introductory management course or could serve as a introductory or end of chapter case dealing with employer-employee relations in a business ethics course.7

LEARNING OBJECTIVES

The overall purpose of this case is to introduce students to the nuances associated with discrimination and affirmative action laws as they apply to employee promotion and superiorsubordinate interactions. Students obtain a "real-world" feel of the situation through character dialogue and tacitly experience some of the difficulties that the characters encountered when trying to progress at the firm and report discrimination violations. Specific learning objectives are as follows:

* For students to obtain a basic understanding of the antidiscrimination laws as they apply to the work environment.

* For students to understand the idiosyncratic nature of being managed in a firm that is not proactive about discrimination violations

* For students to discern what actions Rogers, Young, and Ford could have taken in light of the firms' inaction to their discrimination complaints.

* For students to make a judgment (based upon the facts case and the presiding laws on discrimination) whether Rogers, Young, and Ford had a prima facie case.

* For students to decide, assuming Rogers, Young, and Ford do have a prima facie case, whether or they should win their case and what would be an acceptable remedy.

* What actions the firm can take in the future to prevent discriminatory actions from occurring.

TEACHING STRATEGIES

Preparing the Student Prior to Case Analysis

There are several approaches, none of which are mutually exclusive, that an instructor may employ in terms of utilizing this case. It is strongly recommended that, regardless of which course this case is to be employed with, students should have some exposure to antidiscrimination law. Some background information can be gleaned from such websites as http://www.eeoc.gov/types/race.html (EEOCs definition of race discrimination), http://www.eeoc.gov/facts/qanda.html (discriminatory practices), http://www.usdoj.gov/crt/emp/faq.html (the justice department's site on frequently asked questions) and http://www.lawzilla.com/content/fed-emp-300.shtml (facts about EEOC mediation).

Secondly, it is also recommended that students have some grounding in employee standard employee hiring and promotion practices. This information can be obtained from a typical HRM textbook as well as from recommendations from The European Community Regional Development Fund (http://www.equality-online.org.uk/ equality _advice/recruitment_selection.html) and EEOCs Best Practices of Private Sector Employers (http://govinfo.library.unt.edu/npr/library/BestPractices.htm).

The above information may be delivered prior to assigning the case by using at least one (1) of the follow methods:

* a short lecture, student presentation, discussion session, and/or reading assignments on aforementioned topics.

* a guest lecturer from a human resource manager and/or EEOC compliance officer.

Role-Playing (80 minutes)

Role-playing enacts a case and allows the students to explore the human, social, and political dynamics of a case situation. This case lends itself quite well to a role playing exercise since the filing of discrimination charges can be enacted through a confrontational venue; a mock court.

Prior to role-playing the case part, students should be asked to not only read the case part but to answer the following questions:

Who are the key participants in the case? Why?

What is the "role" of each of these participants in the organization?

What is their motivation or rationale for their behavior?

What is the dilemma that the character is facing and/or how can the character assist someone else in solving a problem?

The instructor may either go through these questions prior to case enactment or wait for the role playing exercise to be completed in order to use this material to debrief the class.

Step 1: Assignment of Roles & Instructions (10 minutes).

The class as a whole should be employed for this exercise. Given the class, the instructor can determine how many jurists will be needed, whether a student will play the role of the judge (although this role is suggested for the instructor), and how many witnesses will be available to testify in court. At least three students will be needed to play the role of the plaintiffs (Rogers, Young and Ford), one student to represent the defendant (the firm), and two students will need to role play their respective attorneys. Witnesses from the case should include Kevin Simmons, Vice President of the Financial Administration Department, Laura Hertz and Mary Connors, who worked for the Accounts Receivable Department, Tom Mathers, Credit Manager, and Linda Evans, a secretary. Other students may be assigned to be witnesses, as needed.

Step 2: Enactment (50 minutes).

The instructor or the student playing the role of the judge should start the court hearing by summarizing the situation and then asking each attorney to make an opening statement. The instructions to the students playing the attorneys is that they need to "win at all cost" and therefore: a) a settlement is out of the question; b) they will conduct a very aggressive cross examination. The instructions to the students playing Simmons and Mathers is to absolutely deny race, age, or gender impacted their treatment of their employees and certainly did not play any role in the most recent promotion decisions.

Step 3: Debriefing (20 minutes).

The instructor might want to ask the following questions:

Did the jury reach a verdict?

If in favor of the Plaintiff, what was the settlement?

Did you agree with the jury's verdict? Why or Why not?

Evaluate each attorney - did they do a good job in making their case?

Evaluate the Plaintiffs and the Defendants - were they believable?

Evaluate the witnesses - were they believable?

The instructor should then have the class as a whole comment on the results of the role-play and determine with the class their overall analysis of the situation. Students should also be given the opportunity to comment on the role-playing exercise as a learning instrument. The instructor might ask the class the following questions:

Did this exercise animate the case? Did students get a "feel "for the issues surrounding the discrimination suit?

What were the strengths and weaknesses of the exercise? What changes would they make to the exercise given their experiences with it?

The debriefing session should produce closure for students by connecting HRM practices and EEOC laws with case specifics and the results of the role-playing exercise.

Suggested Case Questions

Discerning the real problem in the case could serve as an introductory question (i.e. discuss the problem posed in the case), however, this question should be separated from the other casespecific questions dealing with race discrimination since it is evident that the latter questions would bias the answer to the first question. We suggest that, at most, students be given only the question dealing with discussing the case problem as a take home assignment and that the remainder of the questions be employed as in-class discussion questions.

1. What are the antidiscrimination laws concerning the workplace that applies to this case?

This question requires that students recognize that the focus of the case is on the discrimination claim by do some reading and research on race discrimination.

The below average student will answer this question by referring to discrimination in general rather than to race discrimination as discussed in the case. This student might cite Title VII of the Civil Rights Act of 1964 which "prohibits discrimination based on the protected classifications of race, color, religion, national origin, and sex."8

The average student will probably cite the more recent Civil Rights Act of 1991 noting that this act was passed in order to make it easier for employees to substantiate their claims and by addressing mixed-motive cases (those cases where other performance-related factors also motivated the employment practice).

The above average student will also note that "in Wards Cove Packing Co. v. Atonio (1989), a five-member Court majority implicitly overturned its earlier interpretation of Title VII of the 1964 Civil Rights Act in Griggs v. Duke Power Co. (1971) and held that the burden of proving that a defendant company's employment practice discriminates against a protected group always remains with the plaintiff and does not shift to the defendant. In this act [P.L. 102-166], Congress rejects the Court's holding in Wards Cove and places the burden of proving that its employment practices do not discriminate squarely on the defendant."9

The exceptional student will further denote that "in the most important affirmative action decision since the 1978 Bakke case, the Supreme Court (5^1) upheld the University of Michigan Law School's policy, ruling that race can be one of many factors considered by colleges when selecting their students because it furthers 'a compelling interest in obtaining the educational benefits that flow from a diverse student body.'"10

This student might also indicate that states also have their own civil rights laws. For example, New York's Executive Law Article 15 Section 296 (Unlawful discriminatory practices) states that "It shall be an unlawful discriminatory practice: (a) For an employer or licensing agency, because of the age, race, creed, color, national origin, sexual orientation, military status, sex, disability, genetic predisposition or carrier status, or marital status of any individual, to refuse to hire or employ or to bar or to discharge from employment such individual or to discriminate against such individual in compensation or in terms, conditions or privileges of employment."11

2. In your opinion, do the plaintiffs have a prima facie case for discrimination?

This question has two purposes; one, to determine if students understand the concept of making a prima facie case; two, to see if students can apply the requirements for a prima facie case to this case.

The below average student will answer this question without referring to the law regarding prima facie cases and discrimination. This student will then offer a personal opinion based upon the facts of the case (without reference to said laws).

The average student will most probably answer this question by first defining what a prima facie case is. "A prima-facie case is a lawsuit that alleges facts adequate to prove the underlying conduct supporting the cause of action and thereby prevail. . . . A plaintiff can establish a prima facie case of race discrimination under Title VII by establishing that (1) he or she belongs to a racial minority; (2) he or she applied and was qualified for a job for which the employer was seeking applicants; (3) he or she was rejected for the position despite his or her qualifications; and (4) the position remained open after his or her rejection and the employer continued to seek applications from other people with similar qualifications to the plaintiff. McDonnell Douglas v. Green, 411 U.S. 792, 802 (1973). In Texas Dept. of Community Affairs v. Burdine, 450 U.S. 248, 253 (1981), the Supreme Court stated that '[t]he burden of establishing a prima facie case of disparate treatment is not onerous.'"12

This student would then indicate that at all of the plaintiffs were in fact member of minority groups, at least one was eligible for a promotion which did not receive although others filled the position, and his performance seemed to equal those who in fact received promotions.

The above average student would continue by noting that there are two types of discrimination, intentional and unintentional. Intentional discrimination is when employees are treated unfairly or receive disparate treatment while unintentional discrimination is when employment practices that is not job related results in a disparate impact. A prima facie case can be made for intentional discrimination if there are restrictive company policies, discriminatory remarks, or by applying the McDonnell-Douglas test. An unintentional discrimination case can be made by applying the four-fifths rule (the hiring rate of new employees for a minority group may not be lower than 80% of the majority group). This student would note that by employing the four-fifths rule for promotional purposes, it is clear that the other three employees promoted were members of an advantaged group.

The exceptional student would probably continue to cite some of the legal issues surrounding prima facie cases as it affects the defendants. "After the plaintiff has established aprima facie case, the burden of production shifts to the employer to articulate a legitimate, non-discriminatory reason for the plaintiffs rejection. Id. If the employer sustains the burden, the plaintiff then has the opportunity to present evidence showing that the employer's stated reason for the rejection was merely pretextual. Id.; see also McDonnell Douglas, 41 1 U.S. at 807; Lindahl, 930 F.2d at 1437 ('The defendant's articulation of a legitimate nondiscriminatory reason serves ... to shift the burden back to the plaintiff to raise a genuine factual question as to whether the proffered reason is pretextual.') (quoting Lowe, 775F.2datl008).

... Under McDonnell Douglas, to establish his prima facie case, the plaintiff need not prove that discrimination was the motivating factor in his dismissal. All he must do is raise an inference that such misconduct occurred.

A plaintiff can also establish a prima facie case by "offering evidence adequate to create an inference that an employment decision was based on a discriminatory criteria illegal under [Title VII].' Mitchell v. Office of the Los Angeles County Superintendent of Schools, 805 F.2d 844, 846 (9th Cir. 1986) (quoting Teamsters v. United States, 431 U.S. 324, 358 (1977)); see Lowe v. City of Monrovia, 775 F.2d 998, 1006 (9th Cir. 1985) (plaintiff can establish prima facie case of disparate treatment without satisfying McDonnell Douglas test if he or she provides evidence suggesting rejection was based on discriminatory criteria), amended, 784 F.2d 1407 (1986). . . .

Although 'the mere existence of a prima facie case, based on the minimum evidence necessary to raise a McDonnell Douglas presumption, ... the plaintiff [who has established a prima facie case] need produce very little evidence of discriminatory motive to raise a genuine issue of fact' as to pretext. Lindahl, 930 F. 2d at 1437. In fact, any indication of discriminatory motive . . . may suffice to raise a question that can only be resolved by a factfinder."13

This student might then note that in order for the defendant to rebut a prima facie case, intentional or unintentional, he or she may employ the bon fide occupational qualification defense (BFOQ defense) (1. that all or nearly all members of this group are incapable of performing the job in question; 2. to be "authentic", the employer must limit its employees to a specific group; 3. that it would be socially and morally improper to hire a specific minority for the job; and 4. employment of an older worker would place people in jeopardy), indicate that any perceived discriminatory remarks made were not really of a derogatory nature, that hiring and/or promotional standards employed were legitimate, and that the decision made was of a business necessity (the criteria must directly relate to the employee's ability to perform the job effectively).

This student would denote that the plaintiffs' log of preferential treatment and perceived discriminatory behavior would be difficult to disprove since the BFOQ defense does not seem to apply. There is also no information in the case that would indicate that their performance was lower than their colleagues, what exactly the promotional standards were, and what selection criteria were employed for promotion. This student would probably conclude that a prima facie case could be made.

3. Assuming you were the judge in the case and you had already allowed this case to go forward based upon the prima facie evidence, what would be your verdict and what would be an acceptable remedy to the complaint?

The purpose of this question is to allow students to express their opinion about this case and to propose a solution strategy for rectifying the problem based upon the main provisions of the Civil Rights Act of 1991.

The below average student, regardless of their ruling for or against the defendants, would not reference the Civil Rights Act of 1991 in terms of either burden of proof or awarding of damages. This student's final judgment and award will therefore be unbound by legal limitations and be totally based upon personal interpretation of the facts of the case.

The average student would note that damages in cases of intentional discrimination include compensatory damages and punitive damages. "Compensatory damages are awarded for [current and] future financial losses, emotional pain, suffering, inconvenience, mental anguish, and loss of enjoyment of life"14 while punitive damages could be awarded if the jury perceived there was malice or reckless indifference exhibited by the defendants. The limitations on the totals damages would be $300,000 (500+ employees). If this student indicates that there was in fact discrimination in the practices of the firm the student might suggest that the plaintiffs be reimbursed punitive damages and be placed in a position of equivalent authority, responsibility, and compensation as their former co-workers who did receive promotions.

The above average student, when describing his or her final judgment, would indicate if they found for the plaintiff whether or not their finding was of intentional or unintentional discrimination. In either case, they would also explain how the jury came to that conclusion given the facts of the case (i.e. since burden of proof is more difficult in disparate impact cases, this student would indicate how the company might fail to prove that their employment practices "is job related and consistent with business necessity").15

The exceptional student might deem this case far more complex in that perhaps mixed-motives were in play. For example, it is quite possible that Kevin and Tom would argue that they in no way intentionally discriminated against the plaintiffs' working behavior and promotion in that they would have treated the plaintiffs the exact same way, regardless of their race, gender, or disability. If this defense held up, the award could be merely a return to the job for the plaintiffs and promotion (and any related back pay) and the reimbursement of attorney fees and court costs.

4. What actions should Rogers, Young, and Ford could have taken in light of the firms' inaction to their discrimination complaints?

This question requires students to address the obligations that employees have to protect their own interests and acknowledges a proactive approach to problem solving. It also requires students to apply their knowledge of general human resource management policies dealing with employee complaints.

The poor student will either denote that these employees were powerless to do anything and that they had no alternative but to seek a legal remedy or would acknowledge that these employees could have taken some action but would only provide their opinions as to what alternatives were available to them.

A fair student would acknowledge that most organizations have several standard procedures for registering work-related complaints. The complaint model16 would require that the manager and/or human resource manager: 1) listen to the complaint and paraphrase it; 2) have the complainer recommend a solution; 3) schedule time to get all of the facts and/or make a decision; and 4) develop and implement a plan, and follow up.

If the resolution to the complaint was not satisfactory to the complainant then most organizations would have a formal grievance procedure for formally addressing complaints. These procedures usually include: notifying the individuals involved in the grievance, optional mediation, a written grievance (a formal document), a grievance hearing (hire experts, plan the investigation, interview witnesses, search for evidence, and the hearing), and binding arbitration (selection process of arbitrator, the decision, and handling the cost of proceedings).17

An average student would provide more detail about the grievance process as well as provide more recommendations. For example, there are legal considerations one must address in the grievance process including adequate notice, a fair remedy, respecting privacy and dignity, and preventing physical and emotional injury. Other details might include the "Ten Tips for Handling Grievances" (Let people know whom to approach with servicerelated concerns or problems; allow people to fully explain their views before jumping to conclusions; get the facts and listen carefully; investigate carefully; be tactful; be deliberate; communicate throughout the process; consider all the consequences; admit mistakes; and sell the decision) or "Minimizing the Likelihood of Litigation" (establish realistic expectations; good communication is your first defense; give legitimate grounds for actions and refrain from mentioning irrelevant considerations; follow the organization's written procedure; take the time to do it right; limit the number of people involved and protect privacy; and consult a lawyer when establishing your grievance policy and procedure).18

An above average student would indicate that whistle blowing was another option for these individuals to consider, perhaps if, after they filed a formal grievance, no action was taken. "Whistle Blowing is when an employee tells on an employer who is breaking the law. Employees who blow the whistle on their employers are protected by law. If they are fired or otherwise retaliated against for whistle blowing, they can sue. ... To actually "Whistle Blow", the employee must tell of the illegal act to someone outside the company. It must be a government or law enforcement agency.

If the employee just complains to someone inside the company, that is not whistle blowing, and the employee is not protected by the whisteblower laws. However, the employee may be protected under other laws. For example, it is illegal to fire someone for complaining of sexual harassment or discrimination. . . .

If the employee has reported the allegedly illegal activity to a government or law enforcement agency, he or she is protected. The employer cannot retaliate against the employee. The employer cannot fire the employee for the whistle blowing. The employer cannot mistreat the employee for whistle blowing. This does not mean that after whistle blowing, the employee cannot be fired for any reason. The employer can continue to treat the employee like any other employee. But the employer cannot treat the employee differently because of the whistle blowing."19

The exceptional student would further add that whistle blowing has numerous consequences. "A study by Joyce Rothschild and Terranee Miethe reported on the dire personal consequences to whistle-blowers when they raise a red flag. Many suffered retaliatory behavior from their employers. They lost their jobs or were forced to retire (69 percent of study respondents), received negative job performance evaluations (64 percent), were monitored more closely by their supervisors (68 percent), criticized or avoided by coworkers (69 percent), or black listed from getting another job in their field (64 percent). These retaliatory consequences were more severe if the whistle blower reported company violations to an external rather than internal authority. . . .

The new Sarbanes-Oxley Corporate Reform Law includes significant requirements for publicly traded corporations to protect whistle blowers. It's illegal to "discharge, demote, suspend, threaten, harass or in any way discriminate against" the whistle blower. If executives retaliate against whistle blowers, they can be levied up to $500,000 in fines or jailed for up to 10 years. Board audit committees must publicize direct and insulated communication channels for use by whistle blowers. The Department of Labor can order companies to rehire a whistle blower, bypassing the courts, and whistle blowers can request immediate jury trials to accelerate resolution of their cases.

Sarbanes-Oxley won't protect whistle blowers in private corporations, and it won't provide adequate compensation for the years of emotional turmoil, job harassment, and social isolation that many experience. The National Whistle Blowers Center in Washington asserts that about 50 percent of whistle blowers are fired after making allegations against their company."20

5. What actions the firm can take in the future to prevent discriminatory actions from occurring?

This question goes to the heart of the case - how can management prevent or at least minimize discriminatory behavior. Students must apply their knowledge of diversity management, prejudice and discrimination and apply that knowledge so as to develop a solution strategy.

A poor student will answer this question without referencing any secondary sources, providing only opinion, in a brief, list-like manner.

A fair student will start by defining prejudice and discrimination. Prejudice is "the prejudgment of a person or situation based on attitudes"21 while discrimination is "behavior for or against a person or situation"22 based upon prejudice. Common areas of employment discrimination include recruitment, selection, compensation, upward mobility, and evaluation.

This student might recommend that the most effective method for dealing with discriminatory actions is to provide diversity training - to teach employees to understand why they should value employee differences and be aware of their own biases and prejudices. Most diversity training programs have the following objectives: to understand the changing socio-demographic make up of the workforce; to see the business in the larger context of competing in a global, diverse competitive environment; to show how discriminatory behavior hinders business success; and to show the value of recruit from targeted multicultural markets so that the firm could better reach those targeted markets.23

A good student would add that not only must employees receive continuous training on diversity management, there must be internal monitoring systems (such as procedures for handling complaints and grievances - see question 4) that would allow employees to safely report, without fear of reprisal, any activities that they thought were discriminatory in nature. Furthermore, managers must be trained on how to use these procedures. There also must be a compensation system that rewards whistle blowing so that there is incentive for the employees to risk the potential negative consequences that many associate with this activity.

A very good student would also add that training techniques such as using videos, role playing, case studies, and computer simulations would provide a deeper level of understand as well as lead to behavioral changes if the firm has a culture that supports diversity.

An excellent student would indicate that the nature of discriminatory behavior is such that the firm's entire HRM process, starting with recruitment and selection, must orient the potential new employees to the values espoused by the firm, presumably that the firm values diversity and will not tolerate discrimination in any form. This student would also note that it is the overriding culture that will determine whether the firm's complaint and grievance procedures are merely legal shells for compliance purposes or whether these systems are in place to support employee rights. This student might challenge the firm's ability to change employees' preconceived notions (prejudices) and therefore the firm must focus not on what employees think (their attitudes but what they do (their behavior) relative to other employees. The message must be loud and clear that discriminatory behavior will not be tolerated in any form and the firm must be very clear in defining those behaviors, communicating and educating their workforce, and then enforcing those rules.

EPILOGUE

While the lawsuit was still being decided in the judicial system, Darius D'Amore did an entire restructuring of the managers included in the suit. When Linda Evans asked her supervisor why they were moving people around, she was told that the Company wanted upper management to be more diverse. The truth about the restructuring may never be known but all of the managers included are still with the Company, except Mathers and Wines, who were both terminated in May 2002.

No known actions were taken against the managers who did nothing, and at times they discouraged employees from going to Human Resources. Mary Connors noted that Kevin Simmons was highly looked upon by his peers for his hard work. She remarked "So instead of taking disciplinary actions against him, they transferred him to a Vice President position in a different department and gave him a raise." Mary Connors and Linda Evans were most disturbed by the transfer of Cathy to Retail Accounting. Based on her record of dealing with minorities, she was not let go, but transferred to a position created for her and not posted for others to apply. Viola and Price are still in their same positions. Mike Bonn, along with other managers who were slightly involved, were moved to other departments. No one will know for sure if it was due to the lawsuit, but the timing makes it seem that way. The case was settled out of court within six months of the filing, but because of a confidentiality clause, Rogers, Ford and Young would not give any comments with regards to the outcome or how it has affected their lives. The dollar amount to be paid to the three Victims is confidential but there is a footnote on the financial statements for fiscal year 2003 that reads "a special charge of $22.0 million ($13.5 million after tax)... [is] related to the proposed settlement of legal action."

Soon after the lawsuit was filed, the President, Anthony D'Amore, sent out a letter restating the company's policy on discrimination and harassment. Along with the letter was a questionnaire asking how the Company can better itself in handling employee related situations and complaints.

A Human Resources employee, who wished to remain anonymous, said that the number one complaint from the questionnaire was that some managers handled similar situations differently and punishment was not equal. He also mentioned a major concern was that friendships and favoritism sometimes played a role in determining disciplinary action. Many employees felt that the incident ended with the manager and never made it into the employee's file. It is now mandatory that all employee complaints be reported to Human Resources. Human Resources has the sole responsibility to investigate the claim, interview all parties involved in the incident and hand down disciplinary actions, if needed. If a problem is brought to management, regardless of the severity, it needs to be forwarded to Human Resources. It is not management's duty to look into the situation. The policy was instituted so a central department, which makes sure discipline is equally handed out for similar situations, would deal with the each problem. It ensures employment files will be noted accordingly and his/her manager will award no special treatment to employees.

Many training classes were provided after the lawsuit, but on a volunteer basis. A Department called "Company Strategy Management" that existed before the lawsuit offered about 50 different courses. Each class included participation from the attendees and when possible, used real life situations from Darius D'Amore. The classes ranged from 1⁄2 day to three days in length. They gave details on the Company, motivation, how to handle stress, proper communication skills, etc. Some of the classes touched on discrimination and how to deal with peoples' differences, but there was no single class that talked solely about those issues.

After the lawsuit, new classes emerged with titles such as, "Discrimination: How to Stop It Before It Begins", "Dealing With Others", and "How To Cope With Differences." These new classes tried to alleviate any problems with regards to discrimination before they began.

The most recent solution was a distribution of the newly revised Company's "Code of Conduct, as of September 15, 2004." The title of page 4 and 5 was "How To Raise Concern." It provided a confidential toll-free hotline for "every employee. . .to promptly report any violation or suspected violation of this Code of Conduct, any other Company policy or applicable law or regulation." It also highlighted a "No Retaliation" policy for those employees that raise "good faith" concerns. (See Appendix C for a copy of these pages.) The last section "A Safe and Fair Workplace" talked primarily about "Equal Employment Opportunity" and "Prohibition Against Harassment." (See Appendix C for a copy of the related sections.) The section was a summary of the laws of the EEOC. It again stated the procedure for reporting an incident and the "No Retaliation" policy. The procedure gave the employee the option to report the situation to "your supervisor or your supervisor's supervisor (bypassing the chain of command), or if you feel more comfortable, you may contact Human Resources." If the employee didn't already do so, it was the supervisor's responsibility to advise Human Resources.

Subject: Employment discrimination; Affirmative action; Litigation; Case studies

Location: United States--US

Classification: 9190: United States; 4330: Litigation; 1200: Social policy; 6100: Human resource planning; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 13-28

Number of pages: 16

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: References

ProQuest document ID: 216294386

Document URL: http://search.proquest.com/docview/216294386?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 8 of 100

ACCOUNTING FOR PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS AND THE USE OF ACCOUNTING ESTIMATES AND CHANGES IN ESTIMATES: AN ETHICAL PERSPECTIVE

Author: James, Marianne L

ProQuest document link

Abstract:

Examples of unethical behavior by financial executives and accounting frauds, such as those at Enron, WorldCom, and Adelphia Cable have renewed the public's as well as the business community's attention on the importance of truthful and ethical financial reporting. Legislation, particularly the Sarbanes-Oxley Act of 2002 has supported this renewed emphasis. Ethical financial reporting not only requires the absence of fraudulent behavior but also that entities and their accountants choose estimates that best reflect the underlying economic events. The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," which requires that companies with underfunded plans recognize the underfunded portion on their balance sheets. For some entities the effect of this provision is quite significant. The primary focus of this case is to examine the ethical dilemmas accountants may face when executives utilize estimates to manipulate financial statements.

Full text:

INSTRUCTORS' NOTES

This case focuses on ethical dilemmas that may arise when choosing estimates in accounting for and reporting of defined benefit pensions and other postretirement benefit plans consistent with the new requirements of Statement of Financial Accounting Standards No. 158 (SFAS 158). The case describes a situation where key executives may be using the estimates to manage financial statement results. The case explores the effects of estimate choices on amounts reported on the financial statements and on stakeholders, accountants* ethical and professional responsibilities, and possible solutions to the ethical dilemmas. The case includes ethical, conceptual, analytical, as well as research components. Written and oral communication skills can be enhanced utilizing this case.

This case can be utilized in intermediate accounting as part of the coverage of pensions and other postretirement plans, or in a more advanced graduate class focusing primarily on underlying conceptual issues and the case's research components. Two sets of questions are included. The first set can be answered from the case information and subject knowledge; the second set requires some research. The research questions include questions about a) the effect of SFAS 158 on a real life company, b) the disclosure requirements for pensions and other postretirement plans, and c) authoritative guidance regarding choices of estimates and the issue of financial statement materiality. These questions are particularly pertinent for a graduate accounting class, but can also be assigned as an individual or group research project in intermediate accounting.

The case can be solved in groups during class time, or it can be assigned as a group or individual homework project. In either case, students should review the case prior to discussion in class. The research components can be utilized as an extra credit assignment or as a regular assignment. The case has been tested in a graduate accounting class and was well received by the students. Approximately two hours of outside preparation is needed if the case is completed solely as an assignment. If the research components are assigned at the same time as the company/case specific questions, additional time may be needed. Detailed in-class discussion will require about 45 minutes.

Students should be encouraged to focus not only on the financial statement effects, but also and importantly on the ethical consequences of accounting estimates and changes in these estimates. The instructor may wish to emphasize that objective, unbiased estimates help enhance the reliability and thus the usefulness of the information.

In discussing the case in class, particular emphasis on the importance of integrity, competence, and objectivity is recommended. Reference to professional ethical standards, such as those of the American Institute of Certified Public Accountants or the Institute of Management Accountants would be useful.

SUGGESTED ANSWERS TO QUESTIONS:

Company-Case Specific Questions:

1. SFAS 158 changed how liabilities for pensions and other postretirement benefits must be calculated; as a result, some entities - including Mottins - that did not have to recognize related liabilities on their balance sheets under SFAS 87 and SFAS 106 must now do so under SFAS 158. What factor(s) account(s) for this difference?

Both SFAS 87 and SFAS 158 require that a liability be accrued for underfunded defined benefit pension plans. However, the calculation to determine underfunding differs between the two standards. Consistent with SFAS 87, a minimum liability had to be recognized on the sponsoring entity's balance sheet if the fair market value of the pension plan assets was less than the present value of the accumulated pension obligation (ABO). Consistent with SFAS 158, a pension plan is deemed to be underfunded if the fair value of the pension plan assets is less than the projected benefit obligation (PBO). Since the PBO incorporates future salary increases, while the ABO only incorporates current salary levels, the PBO typically is larger than the ABO. This tends to increase the need for the accrual of a liability under SFAS 158. This is what occurred at Mottins Corporation.

Consistent with SFAS 106, underfunded postretirement benefit plans did not require liability accrual (salary levels do not affect these types of plans). However, consistent with SFAS 158, a liability must be accrued for underfunded plans to the extent that the ABO exceeds the plan assets. This is what occurred at Mottins Corporation.

2. How are underfunded pensions and other postretirement benefit obligations recognized on the balance sheet after adoption of SFAS 158? What was the effect on Mottins' balance sheet?

Companies must recognize a liability and accumulated other comprehensive income (loss) for any underfunded pensions and other postretirement benefit obligations on their balance sheets. The liability typically tends to be classified as a long-term liability. For underfunded plans, the accumulated other comprehensive income account is classified as a contra equity account, thus decreasing total stockholders' equity. When Mottins adopted SFAS 158 at the end of the fiscal year 2006, its total liabilities increased by $223,000 and its total stockholders equity decreased by the same amount.

3. Why would increasing the discount rate assumptions affect the pension plan and health care plan liabilities recognized on the balance sheet? How would the planned increase in the rate of return on plan assets likely affect Mottins' financial statements? Do you believe that the changes in the rates requested by the controller and CFO are reasonable?

Increasing the discount rate assumption decreases both the accumulated and the projected benefit obligations. If a pension or other postretirement benefit plan (e.g. , a retiree health care plan) is underfunded, increasing the discount rate decreases the accrual needed for the underfunded portion, or may even eliminate the need for an accrual. This improves the financial position of the company, increasing equity and decreasing liabilities.

The effect of the additional increase of the discount rate by 0.25 percent on the projected and accumulated benefit obligations would be to decrease or even eliminate the underfunded portion of Mottins' retirement plans. A higher discount rate also affects the company's pension and retiree health care plan expenses through the calculation of the expenses' interest components. The interest components would tend to be lower if a higher discount rate is used, thus decreasing the total expense recognized in Mottins' income statement.

A higher rate of return estimate would lower the pension and retiree health care expense recognized in the income statement. However, any net loss arising during the period from a difference between the actual and estimated return has to be recognized in other comprehensive income during the period.

The requested rate changes do not appear to be reasonable. The company changed the discount rate assumptions during the prior period (2006); at the same time long-term market rates and conditions have not changed significantly. Reasons other than market changes appear to be influencing the executives* desire to change rates.

4. If Mottins Corporation had not increased its discount rate during 2006, how would its financial statements have differed? How did the change affect the company's stakeholders?

If Mottins had not increased its discount rate by 0.5%, its total liabilities associated with the pension and retiree health care plans would have been $1,069,000 (846,000 higher than the $223,000 that were recognized). In addition, other comprehensive income associated with pensions and the retiree health plan (a contra equity account) also would have been $1,069,000. This increase in total liabilities and decrease in total equity would have affected key financial statement ratios such as the debt/equity ratio. Furthermore, the previously used lower discount rate would also have affected pension and health care cost expense, most likely resulting in higher expense. This effect on expense would occur because in calculating the interest component of the expense, the discount rate would have been applied to a higher present value of the ABO and PBO.

Financial statement manipulation and management of estimates generally decrease the usefulness of the information provided and in the long-run negatively affect stakeholders. If Mottins' increase in the discount rate during 2006 was motivated by a desire to manipulate financial statement numbers and/or by a desire to enhance the executives' self-interest, the resulting financial statements were less useful. In the long-run, the interests of the company's stakeholders are best served by unbiased information; this includes pension and retiree health care liabilities that are based on unbiased discount rate estimates.

5. Review the authoritative literature regarding accounting changes and relate it to the discount rate and rate of return changes for pensions and other postretirement benefits. Under what circumstances are changes in estimates justifiable? Does the situation in this case meet the criteria?

Changes in estimates are very common. Currently, SFAS No. 154, "Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3" (FASB, 2005) governs changes in accounting estimates. Changes in estimates are treated prospectively and should be made if new information becomes available that justifies the change and enhances the relevance and reliability of the financial statement information. Based on the information provided in this case, these conditions/criteria do not appear to have been met.

SFAS 87 and SFAS 106 currently govern choice of the pension and other postretirement benefit rate estimates, including the discount rate and rate of return on plan assets. The standards provide guidance, but do not prescribe specific rates to be used in accounting for these plans. Consistent with SFAS 87 "Each significant assumption used shall reflect the best estimate ..." (FASB, 1985, par. 43). For example, "the expected long-term rate of return on plan assets shall reflect the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. In estimating that rate, appropriate consideration should be given to the returns being earned by the plan assets in the fund and the rates of return expected to be available for reinvestment" (FASB, 1985, par 45). SFAS 106 (FASB, 2000) has similar requirements for other postretirement benefit plans, such as retiree health care plans. Again, Motrins' desired change does not appear justified given the case situation.

6. Review the authoritative guidance regarding the amortization of intangible assets. What are the criteria for selecting the useful life of an intangible asset such as a patent? Do you agree with Mottins' accounting treatment for its patent?

Currently, SFAS 142 "Goodwill and Other Intangible Assets" governs amortization of intangible assets (FASB, 2001). Intangible assets (except for goodwill) that have a determinable life are amortized over their useful life. Consistent with SFAS 142 "The useful life of an intangible asset to an entity is the period over which the asset is expected to contribute directly or indirectly to the future cash flow of that entity" (FASB, 2001, 11). If an intangible asset is protected by a legal life (e.g., patent), the asset must be amortized over the lesser of the useful or the legal life. The amortization period currently utilized by Mottins may be too long given potential changes in technology. Further investigation and potential revision of the useful life are warranted.

7. Evaluate the behavior of the individuals involved in this case from an ethical perspective. What are their ethical and professional responsibilities? What may be the motivation for their behavior?

The Company's executives and particularly the CFO and the CEO are required to act in the best interest of the company's stockholders as well as that of other stakeholders. Their actions should reflect a long-run view that includes maximizing shareholders* returns. Earnings management and financial statement manipulation are inconsistent with the executives' ethical, professional, and fiduciary responsibilities. The controllers, assistant controllers, CFO, and all those involved in the financial reporting process must act with competence and integrity to produce financial reports that are relevant, reliable, unbiased, and truthful.

The individuals' motivation may be inferred from their behaviors and attitudes outlined in the case:

The CFO and CEO: It appears that the CFO and the CEO want to maximize the company's income and improve its financial position not solely through positive economic performance, but also by "managing" accounting estimates. The desire to enhance thenbonuses and the value of their stock options may at least in part motivate their behavior.

The Controller: It appears that the controller wants to please his superior and comply with the CFO's wishes. His actions also may be influenced by a desire to earn a bonus.

Katie: Katie is facing an ethical dilemma. Katie wants to succeed in her new position; she takes her professional responsibilities very seriously and wants to act with integrity, competence, and objectivity. She also appears to consider the well-being of the company's employees, as well as her own. She also must comply with the ethical standards of the state board of accountancy of the state that issued her CPA licence and the Institute of Internal Auditors, as well as those of other professional organizations such as the AICPA.

The former controller: The former controller's early retirement may have been influenced by an uneasiness about pressures to manage accounting estimates.

8. Katie apparently feels uncomfortable with some of the accounting estimates and changes in estimates. What options does she have to address these issues and potentially solve her dilemma? What are Katie's professional responsibilities in this case?

Katie should first research the authoritative literature to ascertain that her judgment was appropriate and then prepare a summary that supports her view points with reference to that authoritative guidance. She should then speak again with the controller and try to convince him with the support of her prepared summary. If she is unsuccessful, she also could speak with the CFO. If she is still unsuccessful, she could speak to the audit committee of the board of directors and the financial statement auditors.

Katie should consider the possibility that other earnings and financial management practices currently may be used by the company. If that were the case, it could indicate that management tends to try to achieve positive financial results through earnings and financial statement manipulation. This would be a disturbing situation that could cause additional and future ethical dilemmas for Katie.

Katie's professional responsibilities as an accountant are compatible with as well as complementary to her ethical responsibilities. Her professional responsibilities are to act in a manner that is consistent with a high level of integrity, competence, and objectivity. She must also comply with the ethical standards of the state board of accountancy in the state that issued her CPA licence, and the Institute of Internal Auditors, as well as those of any professional organization (e.g., the AICPA) of which she is a member.

9. What would you do if you were in Katie's position?

Answers will vary. All answers should be supported. Hopefully students will recognize the importance of professionalism, integrity, objectivity, and competence and the importance of relevant and reliable financial information.

Researchable Questions:

1. Identify a large company that has been affected significantly by the implementation of SFAS 158. Briefly summarize the effects on the company's balance sheet.

The answers will vary depending on the company chosen by the students. Many students may choose General Motors (GM) because of the highly publicized effect on its financial statements. A review of GM's 2006 financial statements and financial statement notes (www.gm.com) reveals that as a result of adopting the provisions of SFAS 158, GM's total liabilities increased by $10,738 billion. In addition, GM's accumulated other comprehensive loss increased by $ 16.946 billion and its total stockholders equity decreased by the same amount. As a result of the application of SFAS 158, GM's total stockholders* equity became negative, its total liabilities exceeding its total assets.

2. What changes are expected under phase two of FASB's pension and other postretirement benefit project? How would these potential changes affect entities' financial statements?

The FASB has not yet reached any decisions under phase two of its project. This will change as time passes; the status of the project, and any decisions, including exposure drafts and final rules can be found at www.fasb.org/project/postretirement_benefits.shtml. The SFAS website lists a number of common criticisms of the existing pension and other postretirement benefit accounting standards, which may be addressed during phase two of its project. Among those criticisms that are expected to be addressed is a change in the rate of return used to calculate pension and other postretirement expense. Currently, the estimated rate of return is utilized, allowing companies to smooth the earnings effect. In the future, companies may have to utilize the actual rate, which could increase earnings fluctuations. In addition, less latitude in the choice of estimates for the discount and rate of return rates may be allowed under phase two of the project. These changes would likely decrease the potential for manipulations and increase the information's decision usefulness.

3. What types of disclosures have to be made by the company regarding its benefit plans. List and briefly describe the types of disclosures required under SFAS 158, SFAS 106, and SFAS 87. Do you believe that these disclosures enhance the usefulness of the financial statements?

SFAS 158 requires the following disclosures:

For each income statement year presented, the company must disclose a) " . . . the amounts recognized in other comprehensive income, showing separately the net gain or loss and net prior service cost or credit." (The company must differentiate between other comprehensive income arising from the current, year and those arising from prior years), b) "... the net transition asset or obligation recognized as a reclassification adjustment of other comprehensive income as a result of being recognized as a component of net periodic benefit cost for the period," c) "the amounts in accumulated other comprehensive income that have not yet been recognized as components of net periodic benefit cost, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation," and d) "The amount of other comprehensive income expected to be recognized as components of net periodic benefit cost over the fiscal year that follows the most recent annual statement of financial position presented, showing separately the net gain or loss, net prior service cost or credit, and net transition asset or obligation." (FASB, 2006, paragraph 7).

Consistent with SFAS 87 and SFAS 106, the company also must disclose detailed information about its pension and retiree health care plans, including a description of plan assets, types of assets held, the benefit formulas, all significant actuarial assumptions (e.g., employee turn over, service life, etc.), and significant estimates made (e.g., discount rate, rate of return, etc.) (FASB, 1985, 1990). In addition, for each year presented and each benefit plan, companies must show reconciliations of the beginning and ending balances of the plan assets and the projected benefit obligation, as well as detail of the calculation of the benefit expenses. Furthermore, the company must show the amounts of the vested, accumulated, and projected benefit obligations.

The information required to be disclosed enhances the usefulness of the financial statements. Stakeholders gain insights that will help them judge the obligations of the company and the future compensation benefits for the employees.

4. Can an error or "inaccurate" accounting estimate be ignored if the amount or change in the amount are immaterial? Refer to the authoritative guidance in your answer. Also relate your findings to Mottins' estimates.

Neither FASB, nor the Securities and Exchange Commission (SEC), or any other authoritative entity have defined materiality in definite quantitative terms. SFAC No. 2 defined material omissions or misstatements as those that could have changed or influenced the decision of a reasonable individual (FASB, 1980). In August 1999, the SEC issued Staff Accounting Bulletin No. 99 - Materiality (SAB 99), which supports the FASB's stance on materiality and specifically asserts that "...misstatements are not immaterial simply because they fall beneath a numerical threshold." (SEC, 1999). SAB 99 also lists a number of examples of circumstances that may cause a quantitatively small amount to become material. These include a misstatement that may hide a failure to meet earnings forecasts and misstatements that affect executive compensation, such as bonuses (SEC, 1999).

In the case of Mottins, even if the change in the rate estimates for the pension and retirement health care plans and the effects of the relatively long useful life for the patent were quantitatively immaterial, the effect still may be considered material. For example, the estimates and changes in estimates may help the company reach its earnings forecasts and affect the bonuses earned by its executives. In addition, intentional misstatements and earnings management that in quantitative terms are relatively small, may still reflect a management attitude that is inconsistent with the objective of ethical and truthful financial reporting. Thus, such misstatements should not be ignored.

Subject: Retirement benefits; Accounting standards; Financial statements; Accountants; Business ethics; Case studies

Location: United States--US

Classification: 9190: United States; 2410: Social responsibility; 6400: Employee benefits & compensation; 4120: Accounting policies & procedures; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 29-38

Number of pages: 10

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: References

ProQuest document ID: 216286816

Document URL: http://search.proquest.com/docview/216286816?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 9 of 100

HDTV SYSTEMS

Author: Kirkpatrick, Alan J; Gashugi, Leonard K

ProQuest document link

Abstract:

This case involves both quantitative and qualitative aspects of capital budgeting in a firm whose principal owner desires growth and new products but finds constraints primarily due to the size of the company. The case begins with a description of HDTV Systems as a closely-held company with limitations to growth. It presents limitations to funding and shortfalls in analytical processes. Cashflow estimates for a new consumer television product are presented as well as the project's internal rate of return and payback period. The student will learn that capital budgeting is a complex process going beyond calculations of investment worth. As the analysis of the capital expenditure is carried out, HDTV Systems entertains being acquired by Global Electronics. The combination is seen as perhaps offering a more realistic setting for the large capital expenditure for manufacturing the new television project. The case draws out financial motivations for the potential merger, as well as projections of free cash flow for HDTV Systems as a division of Global. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

Teaching Suggestions

The case allows instructors to demonstrate both acceptable and weak capital budgeting criteria, i.e., the IRR and Payback Period methods, respectively. Instructors can bring in other methods such as Net Present Value, and correct the Payback Period to reflect present value of cash flows.

The case also addresses the "post audit" process in which actual cash flows from past capital expenditures are compared to those originally forecasted. Instructors may also want to bring in underlying causes for shortfalls in cash flows such as missed predictions about consumer acceptance of company products, and in that way demonstrate the importance of marketing research upon financial decisions.

HDTV Systems highlights the advantages of merger with a larger, more sophisticated parent firm. Yet, as a target is brought into a larger parent, its results may not automatically improve. The case provides comprehensive data for use in evaluating the value of HDTV Systems as a potential target acquisition for Global. Instructors can emphasize the similarities of valuing a fixed asset acquisition (the production facilities and equipment for the high definition television considered by HDTV Systems) and valuing an entire target company (HDTV Systems as an acquisition target of Global).

HDTV Systems is considering moving into the production of a high-end electronic product. If the macro economy drops, so will the degree of luxury spending. Firms operating in this environment are required to develop insight into the demand for future products, and there will inevitably be a mix of hits and misses. The key is to be successful most of the time in product development design and sales, so that profitability and shareholder wealth increase on balance across the product offerings.

The case further allows instructors to present a realistic capital request through Exhibit 1 in the case. In this numerical example, the development of periodic cash flows is presented, and the resulting IRR and Payback are presented. Instructors can point out the flaw in assuming a fixed product price over time, as well as the importance of upfront start-up expenses, working capital requirements, and salvage value. Instructors may also address the shortfalls of the payback period.

DISCUSSION QUESTIONS

1. George believed that as long as the IRR of a project more than covered the cost of capital, the firm should benefit. He also felt that the payback period indicated how long HDTV Systems' investment was at risk. Evaluate these investment criteria generally, as well as the specific interpretation George made of the IRR and payback period.

The IRR measure of investment worth is reliable in this case because the cash flows are normal with one sign change, and because the reinvestment rate assumption at 13.5% is reasonable to meet. However, the use of the firm's cost of capital without adjusting for project-specific risk can be challenged. Suppliers of new capital make an assessment of the risk of the firm's growth opportunities, but may or may not have specific information about the risk of HDTV Systems potential, new investment(s) compared to the risk of the firm's existing assets.

The payback period as calculated in the case ignores time value of money, and it ignores cash flows beyond the payback. Additionally, the payback period requires a subjective hurdle, i.e. a maximum acceptable payback is needed and it is subjectively determined.

Many potential asset acquisitions are of a replacement nature, and the risk of such investments is less than for equipment for new product offerings. In the case of the UHDTV project, there is contemplation of a new television model within a company that already manufactures televisions and other electronic products; thus, there is less risk than in alternative projects that might take the company into an entirely new direction.

2. Discuss the effects on the net income of HDTV Systems if the majority of projects undertaken, especially those with large capital outlays, result in actual cash flows below cash flows originally estimated. What are the implications if the expected return is not achieved and the company has to absorb the depreciation expense associated with weak projects undertaken in the past?

Future net income will definitely be lower if cash flows from capital expenditures are lower than forecasted. However, if a firm calculates a high IRR for a particular project with strong projected cash flows, actual cash flows can be lower than projected and net income can still increase.

Depreciation continues under the original schedule even though revenues and/or do not meet projections. Project abandonment must be considered if weak performance results, and depreciation write-off will likely result even if a company finds a buyer for the fixed assets.

3. Discuss some steps that could be taken to allow HDTV Systems to recover market share.

The company could identify production cost reduction opportunities and then perhaps lower product price; it could also enhance product features and/or quality, find more effective promotional methods, offer innovative new products, and additional distribution channels.

4. How could selling HDTV Systems to another firm lead to improvement of its financial performance and to enhanced shareholder returns?

There should be synergies derived from Global's acquisition of HDTV Systems; the larger parent firm may have more effective management and better and less expensive access to capital, and it may have more flexibility to enter new markets. However, large firms may become lethargic, suffer from poor coordination of the firm's activities, and exhibit agency problems.

5. Comment on the stable price assumption underlying the IRR and payback period results for the potential UHDTV project.

The consumer electronics industry has long been characterized by declining product price after an introductory period, and the assumption about constant price over eight years is unrealistic.

6. Verify the accuracy of the 13.5% IRR result for the UHDTV, as well as the six year payback period.

The IRR and payback period shown in Exhibit 1 to the case can be verified using a calculator or Excel.

7. Describe the underlying reason(s) for the trend over time in both cost per unit and operating margin, as shown in the supplemental data in Exhibit 1.

The general decline in cost per unit occurs because of the level of depreciation. Then, as cost per unit declines, operating margin increases.

8. Evaluate the uncertainty of Global actually realizing the cost savings assumed through synergies.

The value of HDTV Systems as perceived by Global may not be fully realized if Global finds that it needs to hire additional management to operate the acquisition. The possibility exists that Global could overestimate administrative synergies, leading to higher costs than originally projected.

9. Discuss the realism of the assumption that the HDTV division will use non-union workers in its operations.

It is a tenuous assumption that the HDTV division will be able to remain non-union, while the remainder of Global's hourly plant workers are unionized. Perhaps this disparity can remain for a period of time, but at some point one can foresee higher wages at the HDTV division.

10. Name and discuss other valuation techniques that could have been used in connection with Global's assessment of acquiring HDTV Systems.

Global could have used multiples of earnings or cash flow. The multiple approach requires obtaining multiples of companies in the public market, and applying those multiples to HDTV's earnings and/or cash flow. Adjustments would need to be made for the smaller size and likely greater risk of HDTV Systems compared to the public companies from which the multiples were obtained. Another approach that could be used, at least as a reality check for the discounted cash flow and multiple methods, is the net assets approach; here, the target's liabilities are subtracted from the book and/or market value of the assets.

11. One objective to acquisition of a target in the same industry as the acquiring firm is to "take out the competition". What are the basic advantages to doing so?

The acquiring firm acquires market share and greater control over product pricing. In this way, the acquiring firm's revenues should increase.

12. Discuss other synergies that Global might achieve beyond savings in administrative costs.

Global should be able to leverage its relationships with suppliers of materials. The company should be able to achieve economies through purchasing in larger volume. The fact that both companies are in the same line of business will enhance the likelihood of achieving these savings.

Subject: High definition television--HDTV; Closely held corporations; Capital budgeting; Cash flow; Case studies

Location: United States--US

Classification: 9190: United States; 8650: Electrical & electronics industries; 3100: Capital & debt management; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 39-43

Number of pages: 5

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 216309811

Document URL: http://search.proquest.com/docview/216309811?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 10 of 100

INDIAN MOTORCYCLE COMPANY: STRATEGY FOR MARKET REENTRY

Author: Droege, Scott

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Abstract:

This case presents an iconic US firm, Indian Motorcycle Co, with a rich history that has ceased production three times in the past century and compromised the authenticity upon which the brand is based through a variety of ownership changes and market challenges. Indian Motorcycle Co most recently disillusioned consumers and distributors in 2004 by suddenly ceasing production, leaving distributors without products to sell, and leaving customers with unenforceable warranties. But currently, the British private equity firm, Stellican Ltd, is attempting to restore the brand. Two of Stellican's partners, Steve Heese and Stephen Julius, have taken active management roles in the new Indian Motorcycle Co. Both have experience in reviving struggling brands. Indian will soon begin production of a motorcycle model, the Indian Chief, which hearkens back to the 1930s. Yet with three failures in its past, it is uncertain whether Stellican can bring the Indian brand back to life.

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INSTRUCTORS' NOTES

Recommendation for Teaching Approaches

The following five questions with potential answers are specifically mentioned in the case. These questions would be appropriate for student case prep prior to case discussion. Following this are theoretical perspectives professors may want to use for case discussion allowing the discussion to move from specific case issues to more generalized theoretical implications.

1. No doubt there is a consumer base that desires premium motorcycles, but will Indian be able to take market share from established incumbents such as Harley-Davidson?

The three previous failures in Indian's history argue against the ability of the Indian brand to be successful. In addition, Stellican Limited is a British private equity firm and even though they have established manufacturing in North Carolina, biker purists will certainly recall Indian's checkered history when the British private equity firm, Brockhouse Limited, purchased rights to the Indian name and simply rebranded its Royal Enfield bikes as Indian Motorcycles during the 1955-1985 era.

However, Stellican Limited is the venture capital firm that now owns Indian Motorcyele. Stellican is experienced in reviving failing brands and has carefully studied Indian's past. In addition, Stellican has a vested interest in Indian's success and is willing to back up this interest with capital injections. In addition, Indian's top-management team views this as a long-term commitment rather than an overnight story. Combined with Stellican's capital backing, this argues in favor of success.

2. Will another newcomer such as Indian be able to achieve quality levels at the outset necessary to win over consumers and distributors who were burned by Indian's sudden closure in 2004?

Indian has put together a world-class engineering team. Also, top management is well aware of negative consumer sentiment from the most recent 1999-2004 failure. Together with Stellican's long-term commitment, Indian should be able to manufacture a quality motorcycle. On the downside, however, Indian's mall size will not allow scale advantages that can quickly translate into cost savings. Thus, although Indian may be able to build a quality motorcycle, this will likely come at a cost higher than those for incumbents. It is therefore likely that pricing for introductory models will be above competitors' prices for similarly featured motorcycles.

3. Will a single model line in the near term, the Indian Chief, be enough to convince potential customers and distributors that Indian is here to stay?

Students may have a hard time with this question. The argument against Indian's ability to convince customers and distributors that Indian has staying power is its three past failures. Students who look deeper, however, will realize that the Indian Chief, as the most recognized model among Indian motorcycle aficionados, is the most logical choice for initial reintroduction. Thus, bringing back the Indian Chief is a smart way for the new Indian Motorcycle to begin restoring the authenticity of the brand among biker purists who have a substantial influence over product perceptions.

4. Will the financial backing of Stellican Limited provide Indian Motorcycle Company with enough time and resources to pierce the American cruiser market?

This question is a bit tricky but astute students will reframe the question. The answer to this question revolves around Stellican's expected return on equity. Stellican has a long time horizon, but as a private equity firm it will certainly be accustomed to cutting its losses if the reintroduction of Indian does not have at least marginal success. Thus, students should recognize that the market, not Stellican per se, will determine whether Stellican will be willing to provide the time and resources needed to make the brand a success.

5. Why has Stellican Limited chosen Indian when there are numerous other investment alternatives?

Stellican has a strategy of reviving failing brands by unlocking brand equity. The unique focus of this strategy is dependent on the path Stellican has taken in previous private equity decisions. Stellican's managers have climbed the experience curve and now have the expertise to unlock the potential in the Indian brand. (See below for an explanation of how to expand this topic to the path-dependant nature of strategic choice).

Theoretical Perspectives

1. Resource-Based View

Indian's unique place in the history of the American motorcycle market is imperfectly imitable. The social complexity of developing a brand with such recognition among Indian's target market has potential value if the new Indian Motorcycle Company can leverage it in a way to capture the nostalgia of the brand.

A point to make with students is that competitive advantage arises from a combination of all factors of the resource-based view - value, rarity, inimitability, and nonsubstitutability. One classroom approach would be to outline each factor and have students derive a table from this. For example, a table might look similar to the following:

The point of this exercise is to help students see that the RBV requires a combination of factors to garner competitive advantage. It does not appear from this standpoint that Indian is likely to generate a competitive advantage at least in the near term.

However, competitive advantage - performance above industry averages - is not necessary for success (a point students sometimes overlook). Instructors may want to point out that Stellican Limited will be looking for a return on investment similar to other investments with similar risk. Whether or not Indian becomes an industry leader with a competitive advantage relative to the industry average is in some ways irrelevant as long as Stellican's ROI hurdle rate is achieved. In other words, whether other firms outperform Indian is not the most relevant question, but rather the question is whether Stellican can obtain its desired risk-adjusted ROI.

2. Alliances

A way to bring alliances into the discussion is to compare Indian to Victory Motorcycles. Victory was a new market entrant in 1998 as a division of Polaris, an established manufacturer of snowmobiles and all-terrain vehicles (ATVs). Victory competes directly with Harley-Davidson and had a difficult time gaining acceptance in the market. After sluggish initial sales, Victory aligned with Arlen Ness, a firm with a long history of designing custom motorcycles and custom motorcycle parts. Victory developed an alliance with Arlen Ness in which Arlen Ness handles the design work on a select group of Victory's models known as the Arlen Ness Signature Series. In addition to Victory's other product lines, this has created additional sales to those who prefer a "factory custom" motorcycle - a mass produced motorcycle with a custom look with the Arlen Ness special edition name attached.

It would be interesting to ask students if a similar alliance would benefit Indian Motorcycle Company. Indian Larry Legacy is a well-known boutique firm among custom motorcyclists that designs one-of-a-kind motorcycles. The namesake of the firm known as Indian Larry passed away in 2004, but this only increases the distinction. The name "Indian Larry" is especially appropriate to the Indian Motorcycle Company brand. Questions to interject to spur class discussion for comparison might be: Would Indian benefit from an alliance with the Indian Larry Legacy at the outset in the same way that Victory has benefited from its alliance with Arlen Ness, or would it be better for Indian to establish itself on its own merits before considering such alliances?

3. The Threat of New Entrants

The threat of new entrants can be examined from the perspective of incumbent firms. Does Indian represent a viable challenge? Instructors teaching this case can divide the U.S. cruiser market into four groups (as discussed in industry segment of the case): (1) HarleyDavidson as the incumbent with historical similarities to Indian but with a huge market lead and an established distribution network, (2) Victory Motorcycles, the division of Polaris started in 1998 that can, along with Indian and Harley-Davidson, claim that it is an American motorcycle company with headquarters in Minnesota (an American country of origin tends to have consumer appeal in the U.S. cruiser market segment), (3) non-U.S. firms that target the motorcycle cruiser market such as Honda, Yamaha, Kawasaki, and Suzuki and (4) boutique firms that make custom motorcycles such as Orange County Choppers and Mad Dog.

Students' analysis should reveal that boutique firms will be the least concerned about Indian's market reentry. In fact, sales of Indians will likely spur new demand for the boutiques as Indian owners customize their bikes; i.e., chopper forks and other fairly expensive customizations. Non-U.S. firms face the largest threat; even though they have operations in the U.S., foreign countries of origin tend to matter to at least a segment of cruiser buyers. Victory and Harley-Davidson are in the middle of this risk continuum; both can claim to be American bikes although Harley-Davidson has the edge over Victory given Harley's establishment as a brand dating back to 1903 (versus Victory's beginning in 1998).

Instructors may wish to use the above information in class to draw a risk continuum based on the threat of Indian's market reentry. The continuum would look similar to the following:

4. Private Equity Acquisition

Stellican Limited is a private equity firm specializing in three areas: distressed situations, value situations, and special situations. Part of Stellican's philosophy is that "superior management is the largest and most controllable source of value creation." Stellican typically gains a controlling interest in a firm then works closely with the firm's management to unlock potential value. But with Indian Motorcycle Company, two of the four Stellican partners (Steve Heese and Stephen Julius) have taken on management roles with Heese as president and Julius as chairman. Clearly, this was necessary given that Stellican simply bought the trademark of a defunct company that had no management team.

This brings up two questions typically asked about corporate acquisitions but also apply here: (1) Is the acquired company better off and (2) is this the best alternative? Students will easily see that question 1 doesn't apply given that there was nothing more than a trademark at stake before Stellican intervened. However, question 2 may provide some debate. The instructor could frame the debate around the issue of whether Heese and Julius are the appropriate persons to head Indian. Both are full-time partners in Stellican and both are on the top management team of Chris Craft, the boating firm Stellican previously revived. Thus, given that both of these executives cannot give their full attention to Indian, is Stellican's ownership of Indian the best alternative? Would Indian be better off with a management team devoted solely to this single firm and its outcomes rather than splitting its partners time between Indian and these partners (Heese and Julius) other responsibilities?

At this point, professors may wish to bring up the path-dependent nature of strategy. That is, future strategic options are to some extent limited by past strategic choices. As a private equity firm, Stellican could conceivably invest in any number of struggling businesses but Heese and Julius' experience has been reviving iconic, although struggling, brands. Their cumulative experience thus steers them toward strategic situations in which they have some prior, applicable knowledge. The goal of this is to show students that sometimes it is helpful to break the frames - the assumed logic - of a strategic path. Once professors make the point that Stellican may have difficulty recognizing opportunity outside their relatively narrow frame of reference, professors could then encourage students to think of other situations in which a firm may have been better off to pursue "frame-breaking" rather than obvious strategic alternatives. (A classic example is Kodak's hesitancy to move into digital cameras early in the digital camera product life cycle, preferring instead to incrementally improve its film technology - a strategic mistake that nearly cost Kodak its viability).

Their active involvement with Stellican and Chris Craft ensure that Heese and Julius have less at stake than a typical management team; their employment is diversified. If Indian turns out to be another failure once again, Heese and Julius can walk away with Indian (as it has done before) leaving customers and distributors hanging. On the other hand, both Heese and Julius have a vested interest in Indian's success through Stellican's large investment in restoring Indian. In addition, both executives have experience in turnaround situations. Thus, the debate comes down to how much confidence customers and potential distributors can place in a top management team that has a stake in the outcome but who can also walk away. In other words, is the stake large enough to inspire confidence? There are no clear answers at the present time; the fact there are no clear answers should help stimulate class debate.

Ethics

For those wishing to bring up ethical issues, a recent interview by MotorcycleUSA would be a good starting point. MotorcycleUSA asked Indian Motorcycle Chairman Stephen Julius:

"There have been stories in the media where Native Americans have protested using their likeness in a manner they perceive as offensive. They even tried to have the professional baseball team, the Atlanta Braves, change their name. Have you had any negative feedback from Native American groups over the use of the word 'Indian' and 'Chief and 'Scout'?"

Julius responded:

"Well, let me make two comments. First, anything we will do will certainly not be in any way disparaging to the Native American population here. We are proud to be associated with them. Secondly, these issues were raised in the past and they were dealt with, actually, after quite long and expensive legal cases in the courts and they've all been resolved, so that's not something that is of concern to us."

Instructors might begin by asking students if they agree that using the Indian brand name might be offensive. For instance, is it ethical to use a group that has historically suffered discrimination and prejudice to advance a commercial brand? As students discuss this point, additional debate can be injected by asking whether students would support a brand called "African American" if that brand name would increase sales. The larger point to discuss is at what point do commercial interests cross the line when using historical situations involving minority groups?

As students debate this issue, it is worth considering whether endorsements might help overcome any negative reaction to the Indian brand. For example, Indian Motorcycle could perhaps ask Native American tribes to endorse the Indian brand name as emblematic of the historical struggle of Native Americans. This would turn the tables and allow a potentially damaging brand name from the perspective of insulting a minority group to become an asset rather than a liability

Subject: Motorcycles; Brand image; Ownership changes; Case studies

Location: United States--US

Company / organization: Name: Indian Motorcycle Corp; NAICS: 336991

Classification: 9130: Experimental/theoretical; 7500: Product planning & development; 8680: Transportation equipment industry; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 45-52

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: References

ProQuest document ID: 216309890

Document URL: http://search.proquest.com/docview/216309890?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 11 of 100

BETTER FACTORIES CAMBODIA: BUILDING A COUNTRY VOID OF SWEATSHOPS

Author: Rarick, Charles A; Firlej, Kasia

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Abstract:

Better Factories Cambodia is an organization that seeks to increase employment in Cambodia by certifying that products produced in registered manufacturing companies meet minimum employment standards. The organization has certified over 200 manufacturing firms and presents itself as a model for other developing countries. Questions remain concerning the legitimacy of the certification process and the perceived value that foreign companies and their customers place on socially responsible manufacturing. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

Target Audience and Teaching Strategy

This case is written primarily for undergraduate students taking a course in international business, however, it can be used in a number of other courses as well. It could be effectively used in a basic marketing or international marketing course, as well as a course in economics, or an introduction to business course. Since the case deals with social responsibility and ethics, it could also be used a courses devoted to these topics. Since the case is short and focused, it can easily be incorporated into many courses in the business curriculum.

The purpose of the case is to generate a discussion on the topic of contract manufacturing in developing countries. Often contract manufacturing has been mentioned in the media when a sweatshop is uncovered and a major company is embarrassed. Nike, Wal-Mart, Disney, and others have all had to deal with negative publicity surrounding their arrangements for foreign manufacturing at one time or another. The case should be of interest to students as they are consumers of many of the products produced under these conditions.

The case can be used in a number of different ways. The case is perhaps best used for general class discussion, however, an argument can be made for its assignment as a group project. Students can visit the websites of the various parties involved in the case to gather further information if desired. In particular, students can learn more about SA 8000 and how it compares with the work of Better factories Cambodia. The website for Better Factories Cambodia has a number of newsletters available for evaluation.

ANALYSIS

While suggested answers to the discussion questions follow, the case isn't written for definitive answers to those questions. The case is written for a class discussion and critical thinking on the part of students and some opinions will be expressed in response to these questions.

Discussion Questions:

1. Do consumers care how the goods they purchase were produced? Should they care?

The importance of this question is that without a niche, Cambodia will have a hard time competing with China in the garment industry. Cambodia has chosen to gain its competitive advantage via a sweatshop-free environment. If consumers really don't care about the working conditions of the factories in which their goods are produced, this advantage will not result in many gains for Cambodia, in the long run. While some attention has been paid to these issues, it seems to be quickly forgotten by consumers. In some cases, such as in the fur industry, a campaign against unethical treatment of animals seemed to have produced a long-term consumer backlash. Overall, it appears that consumers for the most part are not aware of any sourcing issues for the products they purchase and it is questionable as to how much they really care. One advantage for Cambodia in this area, however, is that it is not the ultimate consumer who may need to be catered to as much as the middlemen. For example, while a customer at Wal-Mart may not care that a tee shirt he/she is buying was produced in a sweatshop, Wal-Mart's management is concerned. Even if social responsibility isn't driven by the ultimate consumer, it is possible that corporate responsibility will make Cambodian factories prosper with their approach. The question concerning whether a consumer should care is subject to some opinion. Many students will argue that it is important, however, their actions may indicate a less thoughtful and caring orientation.

2. Rank the following participants in terms of responsibility for insuring humane working conditions in foreign manufacturing operations: consumers, local manufacturing management, multinational firms who contract the production, local governments

This question can generate a good discussion on the topic of responsibility. A good case can be made for the main responsibility being placed on local manufacturers or the governments of where the countries the factories are located. A discussion of the merits of such manufacturing jobs and the options available to workers in those countries can have a useful purpose as well. While few people from developed countries would want to work in these factories, the jobs are better than the other employment options available in those countries. The workers willingly work in those conditions for the wage level offered. If factories follow the legal rules established by local government then it could be argued that social responsibility is being met. This line of reasoning assumes that all interested parties are doing what is in their own best interests. Consumers get lower priced merchandise and may buy more of it, retailers stay competitive, and contract manufacturers make a profit and can employ people who need jobs. The other line of reasoning is that there is a huge power difference among the participants and that factories do not always follow the rules established by local governments. Child labor, unsafe working conditions, and below minimum wage pay all occur in developing countries and local government may not have the resources to stop these practices. This line of reasoning argues that it is more effective for consumers to place pressure on companies to act responsibly in order to insure that factory workers are treated properly. The ranking that are generated should produce a rich discussion, however, there isn't a right answer to this question. Students should be able to provide the reasoning behind their rankings.

3. Do you think Better Factories Cambodia will be successful? What can the organization do to insure the completion of its mission?

It is difficult to say if this approach will be successful. One factor that must be addressed is corruption. If the auditing process is undermined by corrupt factory owners then it legitimacy will be questioned. Better Factories Cambodia competes with the auditing processes of individual international companies who, like Wal-Mart do their own investigations. Better Factories Cambodia can offer the advantages of knowing the local culture, language, and practices of the country. At least in theory, Better Factory Cambodia can do a better job of insuring that employment practices meet the international standards. It is imperative that the process be carried out in an honest and forthright manner. Increased support from international buyers would help Better Factories Cambodia achieve its mission. If the buyers continue to push for lower prices, the incentive to cheat the system increases. Working closely with international buyers to reduce costs and to increase productivity will be helpful. The realization that adherence to the standards may increase costs must be recognized by the international buyers. In the end, higher productivity in China and Vietnam may doom the venture. Unless Better Factories Cambodia can increase the importance of ethical sourcing, and/or increase productivity in the country's garment industry, the organization may not be able to achieve its mission.

Subject: Manufacturers; Developing countries--LDCs; Labor standards; Certificates; Case studies

Location: Cambodia

Company / organization: Name: Better Factories Cambodia; NAICS: 813910

Classification: 8600: Manufacturing industries not elsewhere classified; 9179: Asia & the Pacific; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 53-56

Number of pages: 4

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Maps References

ProQuest document ID: 216309996

Document URL: http://search.proquest.com/docview/216309996?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 12 of 100

GOING TO MARKET WITH A NEW PRODUCT: ST. LAWRENCE ISLAND, ALASKA

Author: Roberts, Wayne A

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Abstract:

St. Lawrence Island, Alaska, located in the Bering Sea, is actually closer to Russia than Alaska. There is very little economic activity on the island, and the native villages of Savoonga and Gambell are very interested in finding opportunities to generate much-needed cash and employment opportunities for their children. One resource the island has is seaweed. A market study done on behalf of St. Lawrence Island indicates the health food market has been growing over 15%/year and that 30% of health food consumers purchased seaweed vegetables within the past year. One popular seaweed product, kombu, comes from a seaweed available in abundance around St. Lawrence Island. This case describes the channels of distribution associated with this market, along with representative pricing, and asks students to evaluate three channel alternatives open to the St. Lawrence Islanders. The proposed alternatives can be evaluated by a number of criteria, such as economic (cash flow levels and risk), adaptability, and control. Important aspects of channel and buyer behavior uncovered during the market study are available, and may be given during the discussion regarding the alternatives. The case may be introduced verbally and evaluated through the lecture format, or if desired, students may be required to read the case and respond to questions prior to class. This interesting, simple case clearly demonstrates channel members perform functions that someone has to perform, and if a level is cut the functions need to be shifted to someone else. Further, the best channel choice for an organization hinges on the relative strengths and weaknesses of the organization. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

Recommendations for Teaching

I usually assign this case in the introductory principles of marketing course immediately after a lecture regarding channels of distribution. However, I have also used it successfully in the graduate marketing management class. The case is not long, and need not be complicated, but it generates substantial discussion, and students find it interesting. There are St. Lawrence Island photographs and maps on the Internet, and I usually share these prior to our class discussion (for example, see http://www.tsuru-bird.net/gambell/).

In the version of the case presented here three alternatives are presented, and students are guided by a series of questions which guide them through some important considerations. However, I have successfully used this case without providing students with either the three alternatives or specific questions. Instead, I ask students to generate some alternative ways that the St. Lawrence Islanders can get their product to their target market, and ask them to think about what it means for the business, and what they believe would be best in this situation. Simply eliminating the last section of the case makes this possible.

I do not usually ask students to write down their answers. Instead, I use the case to generate a class discussion. As the alternatives are discussed, I put the channel of distribution for each alternative on the board, and I build up a matrix with the alternatives in rows, and various characteristics and criteria as columns (e.g., number of relationships and transactions, number of tasks required, prices/unit, costs, and risks).

I have found that with a relatively small investment of course time this short engaging case makes it clear that cutting out the middleman does not necessarily cut costs, and may not be the wisest course of action for a firm.

Covering the case in class can take anywhere from 15-20 minutes to a full hour. Usually I allocate about 30 class minutes to the case.

DISCUSSION QUESTIONS AND ANSWERS

1. For the first alternative, consisting of focusing on harvesting and selling bulk seaweed to manufacturers, what exactly would the St. Lawrence Island business have to do with regard to the product, pricing, and promotion? Assuming pursuing this would be successful, how many channel relationships would have to be maintained? Success, under this alternative, would depend on what?

The first alternative calls for the St. Lawrence Islanders to harvest, dry, and bundle the kombu for sale to one or more manufacturers. Under this alternative, the product would be bulk kombu. There would be no labeling, no breaking of bulk into small packages, and no branding. Managing the inventory would be straightforward and simple. The price would be modest on a per pound basis, and would be a function of whatever they could negotiate with the manufacturer(s). Promotion would consist of finding one or more manufacturers who could see some value in buying St. Lawrence kombu. Presumably this would be through personal sales calls, and at most a few long-term relationships would be the consequence of the manufacturers finding value in this uniquely-sourced product. Managing channels of distribution would consist of simply getting the bulk product to their one or two customers.

Success under this model would be a function of finding one or more manufacturers interested in buying and using the product, and in developing the expertise to harvest, dry and transport the seaweed to the buyer(s). In Japan the kombu is sold in bulk at central auctions, and this would not be feasible here. There would have to be some reason for the manufacturer to want to work with the islanders. It would most likely have to be because the source of the seaweed will be valued by some consumers. Further, success would hinge on the talents and ability of the manufacturer(s) to effectively compete in the kombu market.

It is important to note that while the price/pound would be low under this alternative, so would the costs. Operationally they would need some people and facilities to harvest, dry and bundle the bulk product, and they would only have to deal with one or, at most, a few customers. The business would be a relatively simple operation.

2. For the second alternative, which consists of selling a finished product to retailers, what additional tasks and activities have to be done with regard to the product, pricing, and promotion? Assuming pursuing this would be successful, how many channel relationships would have to be maintained? Success, if this alternative is pursued, would depend on what?

Under this alternative, with regard to the product decisions about the sizes, packaging, labels and labeling, and branding would have to be made. Then, of course, they would have to develop processes and learn how to package and label the products. More supplies would be involved, and managing the inventory would be a little more complicated. Since the islanders have no experience in any of these areas, either time and/or money spent on consultants, or both, would be required at startup. The price to retailers would have to determined, including terms and allowances (e.g., quantity discounts, promotional allowances). With regard to promotion, the islanders would be responsible for finding and convincing retailers to stock the product, and they should actively consider how to promote the product to consumers. If successful, the islanders would have to manage a fairly large number of relationships with retailers of different sizes in different locations and with different operational idiosyncrasies.

Success under this alternative would be a function of being able to do all of these tasks efficiently and effectively. A very big hurdle and expense would be in contacting and convincing retailers to carry the product. Retailers usually rely on wholesalers, and may be hesitant to buy one fairly insignificant product from one supplier. Students can appreciate how complicated a retailer's life would be if each item stocked was purchased from a different manufacturer.

With regard to this alternative discussions of selling the product through catalogs could be discussed. It might be possible to find catalogers that might be interested in adding such a product to their offerings.

As the discussion unfolds, I tell students about the results of some marketing research. Personal interviews were undertaken with retailers and wholesalers. As expected, retailers revealed that they were not interested in buying a relatively minor product directly from a manufacturer: they indicated they wanted to buy such a product from their wholesalers. Interestingly, Puget Consumers Coop in Seattle started an independent wholesale company, Nutrasource, so that Puget Consumers Coop could focus on the retail business and leave the problem of finding and managing relationships with manufacturers to others. Personal interviews with wholesalers likewise revealed that they were not interested in adding a seaweed product manufacturer to their sources, especially one that had only one or two products that were equivalent to those they were obtaining from established manufacturers. Thus, retailers were not interested in single-item producers (at least at the level of sales expected in this case), and second, wholesalers appeared to be reluctant to add new manufacturers of a single, relatively low sales volume product.

3. For the third alternative, which consists of cutting out the retailer and selling the final packaged product directly to consumers, what tasks and activities would have to be done beyond what would be required under the second alternative with regard to the product, pricing, and promotion? Success, if this alternative is pursued, would depend on what?

Under this alternative consumers would have to be found and convinced to buy the product. Possible ways to do this would be through direct mail, telemarketing, and/or the Internet. The packaged product might not be any different. With regard to pricing, the St. Lawrence Islanders would be responsible for setting the final price to the consumer and setting any terms. Compared to selling to wholesalers or retailers, the quantities purchased per transaction would be smaller and much more variable, and this would influence the costs and tasks involved in managing relationships with customers and in shipping the product. Compared to the previously discussed alternatives, the complexity of managing relationships and tasks would be considerably greater.

Success, under this alternative, would be a function of efficiently and effectively finding and communicating with final users of the product, in convincing to buy the product direct, and in being able to handle the large number of small transactions that require shipping. Either here or later students could be asked how interested they think potential customers would be in ordering small quantities of a product they may have never tried or only use a few ounces per year. Would current users even think about looking for sources of kombu on the Internet? Would they respond to an unsolicited email about the product?

At least one person suggested that the St. Lawrence Islanders could sell packages of kombu from carts at tourist destinations (e.g., Portage Glacier near Anchorage or Mendenhall Glacier near Juneau). Even if this would be permitted, students should think through what the reaction of tourists would be as they passed a cart selling packages of seaweed.

4. Roughly, what could the new firm expect with regard to sales and costs in the short term, and the long term, under each alternative? Why?

In the short term revenue would be greatest if they could find an interested manufacturer with established relationships with downstream channel members. Costs would also be modest on a per unit basis. Short term sales would likely be lowest if they decided to sell directly to consumers, unless they couldn't find any retailers to carry the product under the second alternative. The investment and costs associated with selling direct to consumers would be highest, as well. Short term sales to retailers would require a fair amount of personal sales work, and sales would initially be slow, or maybe even zero. Costs would be relatively high, although not likely as great as they would be if they were to sell direct to consumers. Even though the selling price/pound would be highest when selling direct to consumers, and lowest when selling to a manufacturer, volume and cost considerations suggest that profitability would be maximized (or losses minimized) by selling to a manufacturer.

In the long term there is more uncertainty about where the most sales and profits are, but given only one or two products, it is likely that the most profitable, and the alternative with the greatest sales volume, will likely be through selling it to a manufacturer or two. This is because of the reluctance of conventional retailers to buy directly from single-item, lower sales volume products. However, if they can find a retailer chain (or a wholesaler) that will carry the product then perhaps it might be different. In particular, if health food catalog retailers can be interested in such a product, then maybe sales and/or profits might be highest when selling directly through them. Given the low usage rate of the product among consumers, and the fact that for most potential users it is an unsought product, it is likely that selling directly to consumers is not feasible.

5. What sort of investments in people, equipment, and systems are associated with each alternative? What are the risks under each alternative?

When selling to a manufacturer the St. Lawrence Islanders will need people and equipment for harvesting, transporting, washing and drying the seaweed, and bulk storage. They will need to invest in systems and people for keeping basic records and managing the process. Someone will need to be responsible for finding and maintaining the relationship(s) with the manufacturer(s).

If they decide to sell directly to retailers, they will need to acquire information about labeling and packaging, and they should have information that will facilitate decisions about branding, packaging size, pricing, shipping and some logistics. Hence some market research should be conducted by someone. They will need people to package the product, and the supplies to do it. They will need to store both the bulk and the final packaged seaweed. In the main office they will need systems and people to maintain relationships and paperwork with the retailers. Most likely a sales force will be required to find and convince retailers to buy from them, and this will entail other activities and expenses.

Bypassing retailers and selling directly to consumers would entail everything above, with the possible exception of less invested in a sales force, plus more activity and expense associated with finding and communicating and selling to final consumers through advertising and other promotional activities, and in maintaining records associated with individual consumers. More people, perhaps, and more facilities might be required for customized packing.

As one moves from selling to manufacturers to selling to individuals the amount of resources at risk would generally increase, and the business gets more complex. In addition to possibly having more invested as one moves from being a supplier to manufacturers to selling directly to consumers, the increased complexity suggests that the risks associated with operations and marketing get greater. More relationships may mean less variability from period to period, for example, but it also means that there are more chances to make mistakes.

One consideration that can be broached is that the more complicated the business, everything else being equal, the more employees are required. One of the goals of the St. Lawrence Islanders is to provide employment to residents, particularly younger residents, so giving up profits in exchange for employment opportunities may be desirable. Note that they are not compelled to strive to maximize shareholder value.

6. Recognizing that additional research is required, which alternative do you think represents the best bet for the islanders? Why?

Given the inexperience of the St. Lawrence Islanders in manufacturing and marketing, the conservative approach would be to try to sell bulk seaweed to manufacturers. If this can be done, the business would be simple and not require a lot of operational and marketing knowledge, and the business could get up on step quickly. The sales, profits, and cash flows would be fairly easy to forecast. With either of the other two options the costs may outrun revenue for a long time, and the operation may never be profitable.

The main lesson to be learned by this analysis is that if you cut out the middlemen, you need to take over their functions, and to the extent you don't have their expertise and contacts and experience, you will likely not make more.

EPILOGUE

One manufacturer was interested in working with the St. Lawrence Islanders. Not only would the manufacturer buy the bulk product, but the manufacturer was willing to hire St. Lawrence Islanders to package the finished product on the island. In return he wanted their assurance that they would not try to cut him out in the future. The manufacturer sold a large number of products, and indicated that the expected returns associated with another kombu product were not large enough to warrant putting a lot at risk in such a project.

The last I heard, the project never went forward because of organizational complications. There were individuals that could have pursued this, but there was an agreement that there had to be a consensus of the people from Savoonga and Gambell before this could go forward, and this was, and is, a significant barrier.

Subject: Market entry; Islands; Alternatives; Distribution channels; Case studies

Location: United States--US

Classification: 9190: United States; 7400: Distribution; 9130: Experimental/theoretical

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 57-63

Number of pages: 7

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 216302235

Document URL: http://search.proquest.com/docview/216302235?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 13 of 100

ACME ELECTRONICS

Author: Docan, Carol; Gunther, Richard; Rymsza, Leonard

ProQuest document link

Abstract:

Students are presented with a factual setting that they can identify with quickly. A consumer's computer hard drive "crashes" presenting immediate concerns. The consumer takes his computer to the repair department of the retailer where he originally purchased the computer. He learns that the "crashed" hard drive can be easily replaced with a new hard drive. However, the repair department is not equipped to retrieve data from the defective drive. The consumer has spent $800 to recover data from a defective drive that was not his. In addition, he is faced with the cost of reconstructing the data that is lost. Following an exchange of letters with the consumer, Acme Electronics contemplates settling the case.

Full text:

CASE SYNOPSIS

Students are presented with a factual setting that they can identify with quickly. A consumer's computer hard drive "crashes" presenting immediate concerns. Can the computer be repaired and the hard drive replaced? Will the repairs be covered under warranty? Can the data be retrieved? If so, at what cost?

The consumer takes his computer to the repair department of the retailer where he originally purchased the computer. He learns that the "crashed" hard drive (defective drive) can be easily replaced with a new hard drive. However, the repair department is not equipped to retrieve data from the defective drive. The consumer is assured that the defective drive will be returned to him and he is given the name and telephone number of an individual who specializes in the retrieval of data from crashed hard drives.

After the repairs have been completed, the consumer picks up his computer and what he believes to be the defective drive from his computer. The consumer takes the defective drive to the data retrieval specialist who is able to retrieve about 90% of the data from the defective drive. The consumer is excited. He pays the specialist for his services and returns home to view the retrieved data. The excitement of retrieval quickly turns to disappointment when the consumer discovers that the data retrieved from the defective drive is not his data.

The consumer is able to trace the problem to a mix-up at the computer repair department. Apparently the hard drive the consumer received was not from his computer. By the time the mix-up was discovered it was impossible to trace the whereabouts of the consumer's drive and he is resigned to the fact that the data is lost.

The consumer has spent $800 to recover data from a defective drive that was not his. In addition, he is faced with the cost of reconstructing the data that is lost. Following an exchange of letters with the consumer, Acme Electronics contemplates settling the case. However, before this step is taken, several questions must be answered. The case can be divided into three major parts. The first part requires students to analyze a possible negligence claim against Acme with respect to its failure to return the appropriate defective drive to the consumer. Students are required to address the following negligence concepts - negligence per se; actual (cause in fact) causation; damages; and defenses to negligence (i.e., contributory vs. comparative negligence).

The second part of the case requires students to utilize their understanding of several statistical issues. They are required to recognize a proportion, calculate the appropriate sample size for estimating it, and calculate a confidence interval for the estimate. Students will also be asked to apply the concept of expected value as it relates to a statistical variable in the damage estimate.

The last part of the case enables the students to propose strategies regarding settlement and ethical issues raised by Acme's refusal to assume responsibility for its actions.

It is interesting to note that the principal facts in this case are based upon a real life experience of one of the authors.

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

This case is designed for use in an upper division inter-disciplinary business course. The purpose of the course is to enable students to utilize knowledge they have gained in their lower division core business courses. In addition, the course also aims to improve a student's communication, written and oral, and teamwork skills. Student teams prepare the answers to questions presented in the case with coaching from faculty. The faculty coaching is intended to provide answers to team questions. All teams submit a formal written business report containing an analysis of the issues presented in the case. One team of students formally presents their case solution to the class. A second team of students acts as a "discussion team" by asking the presenting team for further explanation or clarification of its case solution. Following the discussion team's exchange with the presenters, the entire class is welcome to participate in an active question and answer session.

Although this case is designed to be used in an upper division inter-disciplinary business course, the case can be easily modified for use as an in class or take-home assignment in an introductory business law course by eliminating the Case B Questions on statistics.

Case A Questions - Legal Issues - Negligence

1. Has Acme been negligent in its actions regarding keeping track of replaced computer components and failing to return the parts to Gunter?

In order to prevail in a claim for negligence, Gunter must establish several points. These elements combined are referred to as the prima facie case. The prima facie case in negligence consists of the following: (1) conduct; (2) duty; (3) breach of duty; (4) actual cause; (5) proximate cause; and (6) damage. (Note: some textbooks do not include conduct as a specific point in the prima facie case.)

In Gunter's case against Acme some of the elements (conduct, duty, breach of duty and proximate cause) can be easily established, while other elements (actual cause and damages) are more difficult to establish. Remember, in order for Gunter to prove that Acme was negligent, he must establish each of the six elements of the prima facie case.

THE PRIMA FACIE CASE FOR NEGLIGENCE

Conduct

Conduct refers to acting affirmatively (doing something) or failing to act (an omission). What is Acme's conduct? Certainly there was affirmative conduct in the repair of the computer, including the removal of the defective hard drive and returning a hard drive that was not the one that was removed from Gunter's computer. However, the conduct leading to the claim of negligence is a failure to act, an omission on the part of the repair department - failure to properly identify the hard drive once it was removed from the computer. This failure to properly tag the hard drive is the reason why Acme is unable to return to Gunter the defective hard drive that was replaced in his computer.

Duty

The next two elements of the prima facie case (duty and breach of duty) can be established by a traditional determination of how a reasonable computer repair dealer should act under the same or similar circumstances or by application of the doctrine of negligence per se.

Duty requires an analysis of two issues. The first issue relates to the standard of care that Acme must exercise in this case. The second issue requires a decision as to whom Acme owes a duty.

Standard of Care - Traditional Approach

With respect to the standard of care, in very general terms one must act in such a way as to not expose another to an unreasonable risk of injury. Stated differently, one must act as a reasonable person of ordinary prudence would act under the same or similar circumstances. In this particular case it can be said that Acme must act in a way that we would expect a repairer of computers to act under the circumstances.

Does the standard of care require identification or marking of defective computer hard drives when removed from a computer so that the hard drive can be returned to the owner of the computer? The standard of care to be exercised may be determined several different ways. For example, custom in the computer repair business may be an indication of how one should act under the circumstances. Without specific custom or usage evidence, students may merely arrive at a conclusion that they would feel is reasonable under the circumstances.

To Whom is The Duty Owed?

Does Acme owe a duty to Gunter? Generally, a defendant owes a duty of care to those who the defendant would foresee to be at risk of harm as a result of the defendant's conduct. Students may explain this part of the prima facie case in terms of "foreseeable plaintiffs" or plaintiffs who are within a certain "zone of danger" as defined by the nature of the defendant's conduct. There is little doubt that Gunter, as a customer of Acme's, is a foreseeable plaintiff.

Breach of Duty

The next point of the case requires a determination of whether Acme has breached the duty of care that it owes to Gunter. The usual approach to determining a breach of duty is to "calculate the risk" that the plaintiff is exposed to by the defendant's conduct. This approach requires weighing the chances of harm occurring and its severity against the cost of preventing the harm and the value assigned to the defendant's conduct. One may look at this approach as similar to a cost-benefit analysis. If the chances of harm occurring and severity of the harm outweigh the cost of prevention and the value assigned to the defendant's conduct, then the duty has been breached. The question presented here is whether Acme has failed to act as a reasonable computer repair dealer in failing to return Gunter's replaced hard drive. On the one side of the calculus of risk scale, the chances or likelihood of harm under these circumstances would be high and the extent of the harm could also be high depending upon the nature of the information contained on the hard drive that was not returned. The risk of confusing the hard drives was high as evident from Acme's letter indicating that it had "experienced a large volume of replacements," and admitted being "unable" to keep track of defective parts. The severity of the harm would be any and all information held by the hard drive.

On the other side of the scale one must consider the cost of preventing the harm and the value attributed to Acme's conduct. The cost of preventing the harm is arguably low. How much would it cost to place a tag on the hard drive to identify it as belonging to Gunter? A high value, however, might be placed on providing computer repair services. However, it might be argued that Acme would not have a valid reason for attempting to repair more computers than it could repair in the exercise of ordinary care.

In the final weighing, a likely conclusion is that the chances of harm and the severity of the harm would outweigh the cost of prevention and the value of Acme's conduct. Thus the duty of reasonable care would be breached by Acme.

If, however, the reverse is determined, that the cost of preventing the harm and the value placed on providing computer repair services would outweigh the chances of harm and the severity of harm, then the duty would not be breached.

Negligence Per Se

Before moving on to the actual cause element of the prima facie case, it would be helpful to look at the concept of negligence per se. This concept provides a way to establish two elements of the prima facie case of negligence (duty and breach of duty) in light of a statute. There are a number of cases that the instructor may choose from to illustrate the concept. One case that serves multiple purposes for this assignment is Haft v. Lone Palm Hotel, 3 Cal. 3d 756, 478 P.2d 465 (1970). The Haft case addresses, in depth, two issues that arise in Gunter's negligence cause of action negligence per se and actual cause.

Statutes can clearly specify how a person should behave. Proof of a statutory violation can create a presumption of negligence. The common law doctrine of negligence per se, presumes the failure of a person to exercise ordinary care if: (1) He violated a state statute or regulation of a public entity; (2) Death or injury results from an occurrence of the nature which the state statute or regulation was designed to prevent; and (3) The person suffering the death or the injury to his person or property was one of the class of persons for whose protection the state statute or regulation was adopted.

Statute - Standard of Care Owed to the Customer

It is at this point that the report may analyze duty and breach of duty with reference to the negligence per se doctrine. Gould Business and Professions Code section 8984.10 reveals that a computer repair dealer is required to "return replaced computer parts to the customer at the time of the completion of the repair" if the customer made that request at the time of the order. The statute clearly specifies the standard of care that must be exercised. Presumably the purpose of the law is to protect the customer. When the hard drive is returned the customer is reassured that the part was actually replaced (as opposed to just being repaired) and gives the customer an opportunity to retrieve the information on the drive. In addition the statute clearly indicates that the duty is owed "to the customer." Gunter, being a customer, is certainly within the class of persons that the statute was designed to protect.

Statute - Breach of Duty

If the element of breach of duty is analyzed from the standpoint of the statute and negligence per se, a conclusion of breach of duty is easily reached. The statute does not specify exactly how the dealer may fulfill the duty to "return replaced computer parts to the customer." Presumably the dealer will develop procedures whereby the replaced parts can be identified for return to the owner. The statute merely requires the dealer to return replaced parts to the customer. However, merely returning to the customer a hard drive would not appear to satisfy the requirements of the statute. The dealer's standard of care would logically require that the hard drive that is returned to Gunter must be the hard drive that was specifically replaced in Gunter's computer. The statute, arguably, is intended to assure the customer that the hard drive had in fact been replaced. In addition, however, it is also likely that the statute also required the return of the hard drive so as to enable the customer to retrieve the contents of the defective/replaced hard drive. The harm that was caused (the loss of information on the drive) may be precisely what the statute was intended to prevent. Nevertheless, without question, the facts clearly indicate that Acme failed to return to Gunter the defective hard drive that was replaced in his computer.

However, proof of the statutory violation does not establish that a defendant's negligent conduct is the actual cause of the plaintiffs harm. Thus, the analysis must move on to the next element of the prima facie case - actual causation.

Actual (Direct) Cause

Of the six points of the prima facie case, this point is the most difficult to establish in this case. Actual cause requires that there be a direct link between the conduct of the defendant and the harm suffered by the plaintiff. In this case Acme's failure to return the hard drive to Gunter must be the cause of Gunter's loss. Generally the issue of actual cause is analyzed using a "but for" question. "But for" the defendant's conduct plaintiff would not have suffered a loss. Stated differently, the defendant's conduct led to the plaintiff loss.

Since actual cause is part of the prima facie case of negligence, the burden of establishing the causal connection is on the plaintiff. So what is the difficulty facing Gunter in this case? The difficulty is that the hard drive that was replaced in Gunter's computer is not available. Thus Gunter is unable to establish that had he been given his defective hard drive he would have been able to recover the information from the hard drive and thus would not have been injured. It is impossible for Gunter to establish the link between Acme's conduct and Gunter's loss because he does not have his replaced hard drive. Although Gunter might argue that since Retriever was able to recover Gottmilk' s materials from Gottmilk's defective/replaced hard drive and since his hard drive was the same as Gottmilk' s, therefore, presumably, Retriever would have been able to recover Gunter's materials from Gunter's defective hard drive. Acme's position would most certainly be that Gunter would not have been able to recover any information from the hard drive even if Acme had returned it to him.

Given that it is impossible for Gunter to establish the causal link between his loss and Acme's conduct, is Gunter's negligence cause of action defeated? The answer to this question is not necessarily YES. In some instances, the courts will assume that the casual connection exists and shift the burden to the defendant to establish that his conduct was NOT the actual cause of the plaintiffs loss. Although the presentation of evidence regarding actual causation is normally one of the burdens that must be undertaken by a plaintiff in proving his case, if the lack of evidence in a case results directly from the defendant's conduct the court will shift the burden of proof on the issue of actual causation to the defendant to absolve himself if he can. This shifting of the burden of proof rarely occurs. However, in the present case, Gunter may be successful in arguing that because of Acme's failure to return to Gunter his hard drive it is impossible for him to establish that he would have been able to recover the data from his hard drive because Acme no longer has the drive. Thus, the burden should be shifted to Acme to prove that that failure was NOT the actual cause of Gunter's loss. The inability of Acme to provide such proof will result in the "actual cause" of the loss being established as a matter of law. (Haft v. Lone Palm Hotel, 3 CaI. 3d 756, 478 P.2d 465 (1970), provides a discussion of the circumstances under which the court shifted to the defendant the burden of proof on the issue of actual causation.)

Proximate Cause

This point of the prima facie case is easily met. It is important to note that proximate cause has nothing to do with proximity or closeness of the loss to defendant's conduct. Proximate cause is a concept that will enable a limitation of the extent or scope of a defendant's liability for conduct, on the part of the defendant, that has actually (in fact) resulted in a loss to the plaintiff.

Some courts discuss proximate cause as the natural and probable consequences of a defendant's conduct. Cases dealing with difficulties relating to proximate cause are those where the plaintiffs loss arises as a result of a series of connected, weird and unforeseeable events.

In this case what would be the natural and probable consequences of Acme's actions? Stated differently, are the damages suffered by Gunter the natural and probable consequences of Acme's failure to return to Gunter his replaced hard drive? The answer is most certainly yes. The events leading to the loss are not weird or unforeseeable. There are not a lot of intervening forces at work here. There is no need to explain this concept in further detail since its existence is rather obvious.

Damages

Compensatory Damages

Has Gunter been damaged by Acme's conduct? If so, what are the damages? Clearly Gunter has expended $800 to retrieve data from a hard drive that was not his. The retrieved data was of no value to Gunter. Thus, Acme's failure to return the proper hard drive to Gunter resulted in his needlessly spending $800 to retrieve information from Gottmilk's hard drive that was of no value to Gunter.

Gunter has indicated that he wants Acme to pay him $5,000 to cover the cost of his time to reconstruct lost materials that he used in his consulting work. Here, Gunter must provide some evidence as to the nature of the data that was lost and the efforts he would need to expend in order to reconstruct that data. There are probably not enough facts given in the case to evaluate the validity of Gunter's $5,000 claim. A conclusion that an award of $5,000 should be made would not appear to be out of the realm of possibility. However, an opposite conclusion is also reasonable since the facts of the case are vague on the costs of reconstructing the lost data.

Punitive Damages

In addition Gunter is seeking $10,000 in punitive damages because of the way Acme has handled the entire matter. Students might explain the difference between intentional tort cases and negligence and the possible recovery of punitive damages in these cases. The rational for awarding punitive damages in intentional tort cases (e.g. assault, battery, false imprisonment, defamation, infliction of emotional distress) is two fold. First, the intentional nature of one's conduct is viewed as reprehensible and should therefore be punished. Second, punishing the defendant for conduct specifically aimed at causing harm provides a deterrent affect with respect to the behavior of others.

Generally, punitive damages are not recoverable in a case of negligence. In this case Gunter would not be able to recover any amount for punitive damages. Acme did not act with the specific intent to damage Gunter, but merely failed to exercise ordinary care. The conduct here is not reprehensible, was unintentional, and a deterrent message for others is not appropriate.

Conclusion - Negligence

Student reports will, more than likely, conclude that Acme ' s conduct amounted to negligence and that its conduct caused harm to Gunter. The extent of the harm would certainly include the $800 spent on recovering useless data. It is likely that students would also conclude that the request for $5,000 to cover the cost of recreating the lost data is reasonable. However, a conclusion that Acme would be liable for punitive damages would be clearly erroneous.

2. Assuming Acme has been negligent, what defense(s) may be available to Acme to lessen or eliminate any liability on its part?

DEFENSES TO NEGLIGENCE

Contributory Negligence

In lawsuits based upon a negligence cause of action there are several defenses that may be available to the defendant. If successful, a defense is usually a complete bar to recovery by the plaintiff in spite of having established that the defendant was negligent. This is the result of a successful defense of contributory negligence. If the plaintiff contributes to his loss to any degree, then the plaintiff will recover nothing for the damages suffered as a result of the defendant's negligence. The "Daily Tribune" article states that the State of Gould currently recognizes contributory negligence as a defense. Thus, if Gunter is responsible for bringing about his loss, to any degree, Gunter will recover nothing from Acme.

Did Gunter contribute in any way to the harm that he suffered? The analysis here regarding Gunter's behavior is the same prima facie case that was used in evaluating Acme's behavior, i.e., conduct - duty - breach of duty - actual cause - proximate cause - damage. Reports may not include an in-depth analysis of Gunter's behavior and will provide a superficial coverage of Gunter's possible negligence. Gunter owed a DUTY to HIMSELF to avoid any harm he would suffer if the hard drive crashed. He clearly BREACHED this duty by failing to back up the hard drive. That failure ACTUALLY CAUSED the DAMAGE.

A more thorough discussion of Gunter's conduct is most desirable. Gunter's conduct in this case is an omission - he failed to make a back-up copy of his hard drive. Gunter certainly owes a duty to himself to act as a reasonable person would act under the same or similar circumstances. (This covers the points of duty and to whom the duty is owed.) The interesting question presented here is whether the standard of care would include backing up the hard drive. This is a critical decision. If the standard of care would include backing up the hard drive then the next issue, i.e., has Gunter breached the duty that he owes to himself, is easily determined. If the duty includes backing up the hard drive, Gunter has failed to do this; therefore he has breached the duty. The failure to back-up has caused the harm (actual cause established). The "but for" question would be answered in the affirmative. If Gunter had backed-up the hard drive he would not have been harmed. If the hard drive crashes, Gunter would have a back-up copy and therefore any harm that might have occurred is avoided. The degree of contributory negligence on Gunter's part is not relevant. Contributory negligence, to any degree, results in a complete bar to recovery from Acme.

On the other hand, if the duty does not include making a back-up copy of the hard drive, then the duty is not breached because of that failure. If the duty to oneself is not breached then one element of the prima facie case of negligence is missing and Gunter was not negligent (contributorily). If Gunter was not negligent then the defense of contributory negligence is unsuccessful and Gunter' s recovery of damages from Acme will not be affected.

Comparative Negligence

The "Daily Tribune" article indicates that the Gould Supreme Court is considering changing the contributory negligence doctrine to a comparative negligence standard. The article provides the students with an explanation of comparative negligence (both pure and mixed). The pertinent part ofthat article is:

These comparative negligence systems vary among the states; however, there are basically two different applications. One form is described as "pure" and the other as "mixed" or "limited."

Under the "pure" version of comparative negligence, the award of damages to the plaintiff will be reduced in direct proportion to the plaintiffs percentage of fault, regardless of the ratio. For instance, in the above example, the plaintiff was found to be two percent at fault. Thus the plaintiff could recover 98% of his or her damages. Further, even if the plaintiff were found to be 51% at fault, he or she would still be able to recover at least 49% of his or her damages. Finally, even if the plaintiff were found to be 99% at fault, the plaintiff would be entitled to recover, from the defendant, 1% of the damages suffered. Under the "pure" comparative system it is evident that the harshness of the contributory negligence doctrine is significantly softened.

Under the "mixed" or "limited" version of comparative negligence, in order for the plaintiff to receive any damage recovery, the plaintiff must be no more than 50% at fault for the injury. Thus in the above examples the plaintiff would not recover any damages where the plaintiff was found to be at fault 51% in the one instance and 99% in the other instance.

In addition to the "Daily Tribune" article, the instructor may assign textual material or a specific legal case; or conduct class discussion that will assist the students in analyzing the comparative negligence issue. There are numerous legal cases that an instructor might choose from. One case is Li. v. Yellow Cab Co. of Calif ornian, 13 CaI. 3d 804, 532 P.2d 1226 (1975). The Li case discusses contributory and comparative negligence. The case also addresses the issue of retroactivity once the court decides to abandon the contributory negligence standard and adopts in its place a "pure" comparative negligence standard.

Gunter Not Comparatively Negligent - Full Recovery

The determination of whether Gunter has acted negligently in failing to exercise reasonable care is the same prima facie case we have discussed above. If Gunter has not been negligent then he would be entitled to full recovery of damages from Acme. The result in this instance is the same regardless of whether the defense is based on contributory negligence or comparative negligence.

Gunter Comparatively Negligent - Recovery Differs

If Gunter is negligent, then the percentage of his contribution to his own loss must be determined. The analysis can only make statements based upon certain assumptions. If the Supreme Court of Gould adopts a pure comparative negligence standard then Gunter's recovery would be reduced by the percentage of his contribution to his own loss. Suppose Gunter contributed 60% to his own loss. Under the pure form of contributory negligence Gunter would be able to recover 40% of his damages from Acme.

If the Court adopts a mixed comparative negligence standard, then Gunter would be able to recover damages from Acme if the percentage contribution to his own loss is less than 50%. Thus, if Gunter were determined to have contributed 49% to his own loss, he would be able to recover 51%) of his damages from Acme. However, if Gunter were determined to have contributed 50%> or more to his own loss, he would be barred from recovering anything from Acme.

Case B Questions - Statistical

3. Consider the sample of 600 past negligence cases. Suppose you are willing to let the 80% estimate be within .03 (3%) of the true proportion. You are willing to assume a 90% confidence.

a. Is 600 an adequate sample size for the estimate of 80%? Show why or why not.

It has been estimated that 80%o of the time the plaintiff is awarded damages (let ? =. 8). Several assumptions with respect to risk are made. (1) It is desired that our estimate of 80%) is within 3%>, up or down, of the true proportion (let B = .03). Recall that we do not know the true proportion; we can only estimate it. One might be familiar with similar risks used in political polling. (2) The confidence of 90% is the proportion of times that a confidence interval based on the 80%> contains the true proportion. This confidence interval contains an upper value, higher than 80%, and a lower value, lower than 80%>. We can be 90%) certain that this interval contains the true percent the plaintiff is awarded damages. (Hint: You may wish to review the concept of confidence intervals. Go to http://www.davidmlane.com/hyperstat and check topic 8 and then 10.) The calculation of this confidence interval is shown in part b below. Let confidence or (1-α) = .90 so that a = .10.

The 80% proportion follows a binomial probability distribution. However, the sample sizes in this problem are large enough to use the normal approximation to the binomial. The probabilities of various percentages occurring can be described by the normal distribution or bell-shaped curve. (See http://www.davidmlane.com/hyperstat and check topic 5.) Errors can either be up or down, so this problem involves two tails, each with a probability of a/2 or .05. From a normal table Z^sub [radical]/2 (05)^ = 1 .645.

The sample size n = [Z^sub [radical]2^ [radical] p(1-p) / B] ^sup 2^ = [(1.645)(.4) / .03] ^sup 2^ [approximate] 48K 600.

Therefore, a sample of 600 is large enough given our assumptions.

b. Construct a 90% confidence interval on the estimate of 80%. How would you interpret it?

Again, using the normal approximation to the binomial distribution, the confidence interval is p ± Z^sub [radical]2^ Vp(1-p)/n or .8 ± (1.645) [radical] (.8)(.2) / 600. The actual sample size is 600 so n = 600. The formula gives an upper bound of .8 + .027 = .827 and a lower bound of .8 -.027 = .773.

It is important that students correctly define this confidence interval. There are several ways to state it. One way is to state that one can be 90% confident that the interval (.773-. 827) contains the true percent the plaintiff is awarded damages. Another is that 90% of all confidence Intervals will include the true percent. However, it is NOT correct to say that the probability the true percent is in the interval (.773-.827) is 90%.

4. Determine the expected value of the amount that could be paid to Gunter in a settlement. Use the 80% probability figure. Also determine a maximum and minimum expected value for the settlement figure based on the confidence interval above. Be sure to include all of the damages Gunter will be able to recover. How would you interpret your expected values?

The expected value is the weighted average of a set of values where the weights are the probabilities of the values. In this problem the values are all costs so the expected value can be called expected cost. Here the expected value is found by multiplying the probability of each possible event by the monetary consequence (cost) ofthat event. Then the results for all events that can occur are summed.

Acme's conduct in this case does not appear to meet the egregiousness standard for purposes of awarding punitive damages. It did not appear to deliberately act with knowledge of a high probability of harm and reckless indifference to the consequences of its actions. Thus, no punitive damages are considered.

The negligence claims that can be considered are (1) the payment of $800 as reimbursement for the expenditure to Mr. Retriever and (2) the payment of $5,000 to cover the cost of time to reconstruct lost materials. Your students may rationalize different values; give them credit if their answers are well thought out.

The expected value (or expected cost) = (.8)(.5)($5800) + (.2)($0) = $2320. The expected value based on the upper bound of the confidence interval of .827 is $2398. The expected value based on the lower bound of .773 is $2242. If there were many cases with similar costs, the mean settlement would be $2320, assuming the 80% figure. Even if the 80% varies (and assuming the 50% is correct), the interval $2242 - $2398 is relatively small. $2320 appears to be a reasonable estimate.

Case C Question - Ethical & Strategic Issues

5. Should Jetson attempt to settle the matter with Gunter before he files a lawsuit? If so, what would be the recommended monetary amount of the settlement? Be sure to include all of the statistical and legal issues involved as well as any strategic and ethical issues.

The expected value of $2320 could be used as the basis for a settlement. This amount is much less than Gunter's claims. If Jetson can convince Gunter to settle for something approximating this amount, both parties would save lengthy and expensive litigation costs. (Settling would be particularly beneficial to Acme if the Gould Supreme Court adopts the pure comparative negligence standard). A settlement appears to be in the best interests to the stakeholders involved and appears to be fair and ethical.

Please note that is an open-ended question. A number of good answers are possible. Some of your best students may mention the following ethical and legal issues.

ETHICAL ISSUES

One ethical issue that the case presents is Acme's response to Gunter's request to be reimbursed the $800 out of pocket expense for recovery of data from Gottmilk's defective hard drive. The facts clearly indicate that Acme did not return Gunter's defective hard drive to him. Legally Acme may or may not have to compensate Gunter. However, Acme has already acknowledged that it failed to tag the hard drive due "to the large number of hard drive replacements" it was making during the first two weeks of October 2007. The right thing to do, one might argue, is to assume responsibility for one's actions. The $ 1 00 gift certificate settlement offer does not accomplish this. The student reports should look at this issue and make some attempt to apply at least one approach to ethical decision-making.

There are numerous approaches that are used to determine if one's actions are ethical. The most common of these approaches is the Stakeholder/Utilitarian Theory (maximize the net benefits to society as a whole, i.e., the greatest good to the greatest number). Other theories include the Rights Theory (respecting and protecting individual rights); Justice Theory (fair distribution of benefits and burdens); Categorical Imperative Theory (looking at the results if everyone acted in the same manner); and the Front Page Test (reaction if the decision is reported on the front page of the local newspaper). In order to answer this question instructors must provide students with a framework whereby they can analyze Acme's behavior from an ethical standpoint.

STRATEGY

The strategy involving the legal case revolves around the one-year statute of limitations, the possible change in the contributory negligence defense in the State of Gould, and if there is a change to a comparative negligence standard will the standard be applied retroactively.

Gunter's Dilemma

If the Gould Supreme Court retains the contributory negligence defense, then Gunter should settle. It is likely that if the case were to go to trial, Gunter would be found to have been contributorily negligent and would be barred from recovering any damages from Acme. Acme would appear to have the upper hand at this point and may not have any interest in settling the matter quickly.

If the Gould Supreme Court adopts the "pure" comparative negligence standard then Gunter may wish to take his chances in court and try to establish his claim for $5800. Even if he is found to have contributed to his own loss, his recovery would only be reduced by the percentage of his contribution to his loss. Under these circumstances, Acme may want to settle the case with Gunter. Acme, of course would try to settle for as small an amount as possible.

If the Gould Supreme Court adopts the "mixed" comparative negligence standard, Gunter faces the possibility of being barred from recovering damages from Acme if the jury determines that he was at least 50% responsible for causing his loss. In this instance, Acme would again have the upper hand and may not have any interest in settling the matter.

The one-year statute of limitations will soon bar any lawsuit that Gunter may file. The oneyear period of time within which to file the lawsuit would begin to run from the time Gunter knew or should have known that he was injured. From the facts stated in the case it is not clear on what precise date Gunter knew he had not been given his replaced hard drive. However, the date is somewhere between the middle of October and December 1 , 2007 when Gunter wrote his first letter to Acme. If Gunter does not file the lawsuit in a timely manner he will lose the opportunity to have a court hear his case. The dilemma here is that if the Court adopts the new standard, will that standard be applied retroactively and, if so, how? A reading of the "Daily Tribune" article should raise this dilemma. If Gunter files his case before the Court adopts the new comparative negligence standard, that standard may not be available to him in his lawsuit. The court may retroactively apply the new standard only to those cases that are filed after it changes the law from the contributory to a comparative negligence standard. (As mentioned earlier in the comparative negligence discussion, Li v. Yellow Cab Co. of California may provide the students with some guidance with respect to the issue of retroactive application of the comparative negligence defense.)

Acme's strategy, in light of the statute of limitations and the retroactivity issues, would depend upon decisions reached by the Supreme Court of Gould in the case before it relating to changing the law of contributory negligence. If the Court does not change the law, (the retroactivity issue is not raised) Acme has the advantage and is not concerned with settling. If Gunter does not file his suit within the one-year time period, Acme would escape liability. If the Court changes the law to a "pure" comparative standard and determines that the new standard will apply retroactively to only those cases that are filed after the Court's decision, then Acme may want to settle the case as soon as possible.

AUTHORS' NOTE

Dates are extremely important when a statute of limitations issue is presented in a case. The dates currently included in the case are appropriate if the case is assigned in a Spring 2008 class. If the class is assigned in a subsequent term see the table that follows for suggested dates for the events in the case.

Subject: Defective products; Electronics industry; Negligence; Case studies; Business ethics; Commercial law

Location: United States--US

Company / organization: Name: Acme Electronics Corp; NAICS: 334419, 335311, 335999

Classification: 4300: Law; 2410: Social responsibility; 9130: Experimental/theoretical; 8650: Electrical & electronics industries; 7500: Product planning & development; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 65-79

Number of pages: 15

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables Equations

ProQuest document ID: 216279164

Document URL: http://search.proquest.com/docview/216279164?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 14 of 100

SMITH'S ALL-NEEDS CONVENIENCE STORES, INC.

Author: Smith, D K "Skip"

ProQuest document link

Abstract:

This case can be used to stimulate discussion on at least three interesting and important issues: (1) Identification of characteristics of (and sources of data for) the convenience store industry in the U.S., that is, one of the very dynamic segments of the retail sector; (2) What are the options available to managers of retail stores who are eager to grow their business; and (3) Will the model or conceptual framework or data analysis tool utilized by decision makers affect the data on which they focus their attention and/or the alternatives they are likely to consider? Data in the case include: (1) Description of the challenge faced by Jamie Taylor; (2) Data on (and sources for that data) the convenience store industry in the United States; (3) Background information on the company for which Taylor is working (that is, Smith's All-Needs Convenience Stores, Inc.); and (4) Descriptive information on the store which Taylor manages and the market it serves. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTE

As indicated in the case, store manager Jamie Taylor faces the following situation: The Smith's All-Needs Convenience Store District Manager (i.e., the man who hired Taylor to manage the Abilene store) indicates that he believes the market has changed, and that the Abilene store needs to review and update its approach to the market. The manager has also indicated to Taylor that the Abilene store should be increasing its revenues 10 percent per year. Taylor believes this sort of increase plus good performance on the mystery shopper surveys used by Smith's All-Needs Convenience Stores could increase his compensation considerably; Taylor is very eager to increase his compensation.

As regards lessons and/or information which students should learn from this case, at least three points can be made:

1. Exposure to data (and sources of data) on the convenience store industry in the U.S., a segment of the total retail market in the U.S. which is not only dynamic but also accounts for (in certain product categories including gasoline) a very substantial percentage of total U.S. retail sales. As suggested earlier, it seems worth noting that in our area, there appear to be a number of convenience store management opportunities available for recent university graduates.

2. Identification of a large set of options available to convenience store managers who are eager to grow their business.

3 . Discussion of the question of the extent to which the model or conceptual framework or data analysis tool utilized by the decision makers affects the data on which they focus their attention and/or the alternatives they are likely to consider.

DISCUSSION QUESTIONS

I often select one student to lead the discussion. Another approach would be to solicit input from various students at various stages of the analysis. Either way, my usual approach to this case is threefold:

1. Solicit from many students the details of the situation faced by Jamie Taylor. Usually, I write much of the information which students come up with on the board, so that if questions on "facts of the case" arise, we will have that information in front ofus.

2. Ask an individual student or the class as a whole to address a very specific series of questions. Those questions, and comments relating to two possible solutions to the case, are as listed below:

1, What is the main problem?

Students usually conclude that Jamie Taylor needs to develop a plan to increase (by 10% or more) the sales of his store.

2. What kind of problem is this?

Instructors should not be surprised if there are as many answers to this question as there are students in the class. Clearly, there is no one "right" answer. However, three alternative approaches, each of which seems quite relevant to the situation, are as indicated below:

1. A need to improve the performance of the organization.

2. A need to review and revise the retail strategy being utilized.

3. A need to grow the business.

3. For this kind of problem, what are the key variables which decision-makers must consider, and who is the expert who says so?

For students concluding that the main problem is the need to "grow the business," Ansoff (1957) indicates that there are four (and only four) options: (1) Market penetration; (2) Market development; (3) Product development; and (4) Diversification.

For students concluding that the main problem is the need to review and revise the retail strategy, Lamb, Hair, and McDaniel (2006) indicate that the key elements of a retail strategy are a firm's target market(s) and its retail mix of presentation (that is, layout and atmosphere), personnel, price, place, product, and promotion.

Students concluding that the main problem is the need to improve the performance of the organization may find useful the model of King (1964) for the variables affecting the performance of organizations: (1) Characteristics of the firm's macro environment (for example, interest rates, exchange rates, etc.); (2) Characteristics of the firm's industry environment (for example, the textile industry is labor-intensive, manufacturing of aluminum is energy-intensive, etc.); (3) Characteristics of the "environment" (this consists of characteristics of the firm, characteristics of the firm's competitors, and characteristics of the firm's customers); 4) Characteristics of the firm's strategy (as indicated above, the key elements of a retail strategy are a firm's target market(s) and the retail mix, that is, presentation (i.e., layout and atmosphere), personnel, price, place, product, and promotion; and 5) Characteristics of the firm's tactics and/or the extent to which the firm is able to implement the strategy it has adopted.

4. What data from the case relate to the key variables?

As implied above (and this is one of the key learning points of the case), the data students present will depend on the main problem they identify. Students believing the main problem relates to the need to "grow the business" will focus on the four options identified by Ansoff (1957); Appendix 1 provides descriptions of each alternative and identifies data from the case which relate to each of them. Students believing the main problem relates to the need to review and revise the store's retail strategy will focus on the seven elements of retail strategy identified above; Appendix 2 identifies data from the case which relate to each of those variables. Students believing the main problem is performance-related will focus on the five elements of the performance model identified above; Appendix 3 identifies data from the case which relate to each of them.

5. What alternative solutions can be identified?

Because research suggests we make better decisions if we identify alternatives and then chose one, I require students to identify at least two alternatives. Of course, students having difficulties coming up with a second alternative can be reminded that one possible solution is to "change nothing."

6. Which one alternative does the class/student recommend, and why?

"Changing nothing" is not an option for Jamie Taylor, if he wishes to improve the performance of his store and (in so doing) improve his compensation as well. Students believing that the best definition of the generic problem faced by Taylor involves the need to "grow the business" will need to present an analysis which touches on each of the growth options identified by Ansoff (1957). Students believing that the best definition of the generic problem faced by Taylor involves the need to review and revise the retail strategy will need to present an analysis which touches on each of the seven elements of retail strategy identified by Lamb, Hair, and McDaniel (2006). Finally, students believing that the best definition of the generic problem faced by Taylor involves the need to improve the performance of his store will need to present an analysis which touches on each of the five elements of the performance model identified above.

In discussions and analyses of this case conducted by the author, students chose to focus intensively on the alternative involving the need for Taylor to improve the performance of his store. For additional information on what happened, please see the epilogue.

7. What negatives are associated with the alternative selected by the class leader and/or other members of the class?

Very few solutions are risk and/or problem-free. Negatives associated with the solution proposed by the class leader and/or other members of the class could include the following: The chosen alternative could be expensive both in terms of time and money. Also, because the case probably doesn't provide all the data a decision-maker would need (in other words, it is likely that some important data is missing), it is possible that some assumptions made by the class leader regarding the actual situation faced by Taylor are incorrect. If so, the proposed solution might be inappropriate.

EPILOGUE

In their discussion of the challenge faced by Jamie Taylor, students presented arguments which focused on the performance model suggested by King (1964). Specific suggestions made by the students included:

1. Characteristics of the macro environment

In the long run, the stronger the local economy in Abilene, the more likely it is that Taylor's store will do well. In other words, if any one of a number of macro-level developments takes place (for example, if the traffic count going past his location increases, and/or if additional firms open up near his store, and/or if enrollment at the local high school increases), the performance of Taylor's store is likely to improve. One implication of all this is that (for long term considerations) Taylor should join the local Chamber of Commerce and contribute (with other business leaders) in any way he can to the growth and development of Abilene' s economy.

2. Characteristics of the industry

The case indicates that convenience stores account for approximately 75 percent of all gasoline sales in the U.S. and that gasoline accounts for 70-80 percent of the total revenues of Taylor's store. One implication of this fact is that Taylor should consider implementing some sort of customer rewards program to encourage customers who purchase gas from him on a regular basis to continue doing so, and to encourage customers who do purchase gasoline from him to fill their tanks. Perhaps Taylor could implement a program which rewards customers (free food and/or drinks, for example) every time they present a set of receipts indicating that they have purchased at least 50 gallons of gas. Another advantage of such a program is that it should increase the probability that from time to time, each of these gasoline customers (including the 10-15% of his gasoline customers who currently do not enter the store) will enter Taylor's store and be exposed to the Point of Purchase (POP) promotions which Taylor will be running inside the store.

3. Environment

Regarding characteristics of the company, the case indicates that Smith's All-Needs Convenience Stores (including Taylor's store) compete on customer service, not on price. One implication of this fact is that Taylor needs to ensure that his customers do perceive that they receive high quality service from his employees. To this end, Taylor needs to ensure that his employees pay attention to the following five components of service quality: ( 1 ) Assurance (that is, employees need to be knowledgeable and courteous, and they need also to convey trust and confidence); (2) Empathy (that is, they need to make each and every customer feel as if they have received caring and individualized attention); (3) Reliability (that is, employees must be able to provide customer service dependably and accurately); (4) Responsiveness (that is, employees must be able to provide customer service in a very timely fashion); and (5) Tangibles (that is, employees must themselves look neat and clean and keep the store and its equipment looking neat and clean as well). Obviously, providing consistently high levels of customer service will require Taylor to provide service-related training not only for new employees but also (on a reminder basis) to existing employees as well. Furthermore, to help motivate his employees to focus on these issues, Taylor might want to implement a monthly employee recognition program, in which customers who feel an employee has provided them with especially good service are provided a way (filling out a card, for example) to call attention to that fact. One approach Taylor could use here is to have a drawing or some other reward program in which every employee recognized within the last 30 days by a customer can participate. In any case, both training employees (so that they are able to deliver high levels of customer service), and motivating employees (so that they are eager to deliver high levels of customer service) will be very important. Whether it will be possible for Taylor to do this with a set of most part-time employees is of course an interesting question; it is possible that properly training and motivating his staff will require an increase in the number of full-time employees on his staff.

Regarding competitor characteristics, the case indicates that the convenience store competitor across the street is characterized by slightly lower gasoline prices and an assortment of products which does not include on-premise food service but which otherwise is similar to the product assortment at Taylor's store. Unlike Taylor's store, the nearby convenience store competitor is open substantially less than 24/7 operating hours. One implication of all this is that in his promotional efforts (radio, posters and/or flyers at local companies, posters and/or flyers at the high school, etc.), Taylor might want to highlight the message that customers at his store are able (any time of the day or night) not only to fuel their vehicles but to fuel themselves (snacks, hot sandwiches, fresh pizza, etc.) as well.

Regarding customer characteristics, the case indicates identifies several groups of customers for Taylor' s store, including the following : ( 1 ) Workers from nearby factories ; (2) students attending the high school at Abilene; and (3) Businesspersons and others traveling the highway past his store. As regards the factory workers, the case indicates that there are surges of workers at 5 am (this is a breakfast crowd), 4pm (that is, an "end of shift" crowd), and 1 1pm (that is, a lunchtime crowd) on weekdays. Implications flowing from these patronage patterns include the following: (1) Taylor needs to ensure that he is well-staffed at 5am, when the surge of workers looking for breakfast arrives; (2) For the homeward-bound workers at 4pm, Taylor might want to consider running short "end-of-day" specials on beer and/or other snack items; and (3) Again at 11pm, Taylor needs to ensure that he is well-staffed, so as to be able to get the "lunch crowd" fed during the time they have available. A related implication is that developing a portfolio of lunch offerings that can be prepared very quickly should help capture (and then retain) the business of the "factory workers on lunch break" group.

Regarding high school students, the case indicates that this group begins arriving about 1 1 am and is short not only of time but also of money. The case indicates that the lunches students purchase tend toward breadsticks and soda; as one step toward identifying alternatives for students, Taylor might want to have a look at what students are can get for lunch (for approximately the same amount of money) from other local food outlets. Of course, to ensure that students are able to get in and out quickly, Taylor needs to ensure that on weekdays his store is well-staffed (starting about 1 lam) and well-trained.

Regarding businesspersons and others driving past his store, the case indicates that there is a surge of these types of customers a bit before and after 8am and a bit before and after 5pm as well. As indicated in the case, these customers tend to purchase coffee, gas, and a donut (in the morning) and gas and a cup of coffee in the evening. Taylor may wish to systematically observe the behaviors of people in this group, to see if there are additional products which members of this group tend to purchase; if so, having beginning and end of day specials on those additional products might be a way to develop additional business from members of this group. As already mentioned, a customer loyalty program with rewards for every 50 gallons of gasoline purchased might be a way for Taylor to motivate persons driving past his store to come in and make initial and/or additional purchases of gasoline.

4. Retail strategy

As already indicated, the needs of the three key groups of customers patronizing Taylor's store are somewhat different. It appears that key products for the factory workers might include (for the breakfast crowd) an assortment of different hot breakfasts and snacks to take with them for consumption during the working day, promotional prices on beer and snacks for the end of day crowd, and (for the 11pm lunchtime crowd) an assortment of quickly and easily-prepared sandwiches. For this group, price may not be as important as making sure that service is very very prompt, especially for the 11pm lunchtime crowd; certainly, Taylor must ensure that he has plenty of staff on duty during this busy period. Furthermore, and especially for this group, anything Taylor can do to speed up service to customers by adjusting products and/or the layout of the store and/or payment procedures and/or other presentation-related variables should certainly be done. For the factory worker group, it seems likely that posters and/or flyers in the workplace plus reward programs (for example, a card to be punched each time a customer makes a purchase) should be highly effective and efficient.

As regards product offerings to high school students, Taylor could have a look at what other local food outlets are offering and then work toward creating an assortment of very inexpensive ready-to-eat snacks. For this group, both price and prompt service are very very important, especially for the 11am lunchtime crowd. Again, anything Taylor can do to speed up service to customers by adjusting products and/or the layout of the store and/or payment procedures and/or other presentation-related variables should certainly be done; certainly, Taylor must ensure that he has plenty of staff on duty during that very busy period. For the high school group, it seems likely that posters and/or flyers (if allowed by the school) plus reward programs (for example, a card to be punched each time a customer makes a purchase) should be highly effective and efficient.

As for the businesspersons and others traveling the road in from of his store, Taylor may wish to do some depth interviews and/or closely observe members of this group, with the objective of trying to find additional products (beside coffee, gasoline, and donuts) they would be interested in purchasing. Once Taylor identifies other products of interest to this group (either as they drive off to work in the morning, or as they drive home from work in the late afternoon), he may wish to use small outdoor advertisements or banners to advertise promotions available inside his store on these items. As in the case of the factory workers and the high school students, it seems likely that reward programs (that is, a card punched each time a customer makes a purchase) would be another effective and efficient approach to encouraging ongoing patronage.

5. Implementation/tactics

As mentioned earlier, the strategy for Smith's All Needs Convenience Stores (including Taylor's store) is to compete not on price but rather on customer service. As already noted, however, with a high percentage of his staff being part-time employees, it may be difficult for Taylor (and/or other Smith's managers) to compete on customer service. Increasing the number of full-time employees may make it easier for Taylor and his fellow managers to implement the customer service-based strategy which Smith's All Needs Convenience Stores has adopted.

There are two additional issues which need to be addressed:

1. Many of the suggestions made so far are short-term in nature. In the longer-term, it appears that Taylor should invest additional time and energy in developing deeper knowledge of the attitudes and behaviors of members of his three primary customer groups: (1) Workers in nearby factories; (2) High school students; and (3) Businesspersons and others driving past his store. As he develops deeper knowledge of the attitudes and behaviors of members of these groups, Taylor may discover that there are additional products and/or services which members of these groups would be eager to purchase from him.

2. So far, the suggestions to improve the performance of Taylor's store have focused on the weekday trade, that is, the groups of customers (primarily, the workers at nearby factories, the high school students, and the businesspeople and others who drive past Taylor's location) who patronize the store Monday through Friday. It appears that Taylor should do an in-depth analysis of his weekend business, to see if there are groups of prospects (that is, additional potential target markets) in the market for the sorts of products he already offers and/or could easily add to his product line. For example, at various times during the weekend, there may be groups of churchgoers who could be offered meals either before or after church.

Subject: Convenience stores; Market strategy; Field study; Case studies

Location: United States--US

Classification: 9130: Experiment/theoretical treatment; 7000: Marketing; 9190: United States; 8390: Retailing industry

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 81-92

Number of pages: 12

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables

ProQuest document ID: 216275576

Document URL: http://search.proquest.com/docview/216275576?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 15 of 100

DEVELOPING A PERFORMANCE MANAGEMENT SYSTEM AT THE COMMUNITY OUTREACH AGENCY: A CASE STUDY

Author: Medlin, Bobby; Green, Ken

ProQuest document link

Abstract:

Students are provided with a management scenario describing top management's request to develop and implement a system of performance management in the organization. Students are asked to review the scenario and develop and describe a system of performance management that will lead to enhancing long-term organizational effectiveness. Students should consider both operational and strategic issues, problems, and concerns associated with completing the assignment. To facilitate their analysis, students are provided with brief definitions/explanations/descriptions of performance management, performance appraisal, job analysis, and job descriptions. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

Recommendation for a General Teaching Approach

This case has been successfully used to specifically reinforce the performance management function for senior level management and human resource management students. This case forces the student to explore all aspects of performance management including potential problems, development, implementation, and requirements for long term effectiveness.

A general instruction approach includes a thorough discussion of performance management, performance appraisals, job analysis, and job descriptions. A review of the tasks of strategic management and the management process would also be appropriate. This review and discussion should take approximately two in-class hours. The case instructs students to develop a comprehensive report based upon information in the case. Individual instructors may require each student to submit a written report or he/she may prefer to require teams of students to make formal presentations as if presenting to the board of directors of the firm. Reports would be graded primarily for content with specific attention being paid to students' ability to address both strategic and operational issues while effectively describing a performance system for the organization. If instructors decide to make the case a team presentation assignment, grading could also include an oral communication skills and/or a teamwork component. A general in-class discussion of the case may be appropriate after assignments are submitted or presented. The instructor may choose to highlight specific items from the case that offer significant concerns or challenges and ask students to identify the actions to address these items.

THE REPORT

Students are asked to develop a comprehensive report to present to the board of directors that describes a proposed performance management system for the agency. Students are instructed to address both strategic and operational issues.

Strategic issues

Students should recognize the strategic nature of performance management. Performance management is linked directly to the mission, objectives, and strategies of the organization. Job analysis gathers information that determines the elements of each job that are essential to organizational effectiveness. Job descriptions reflect this information and are critical management tools for effectively appraising an employee's performance. Reward and development decisions for employees should flow directly from these appraisals.

COA has no mission statement and no stated long-term or short-term objectives. There are no job descriptions. Performance appraisal criteria are not linked to job descriptions - since job descriptions don't exist. No evidence indicates that job analysis ever takes place at COA. There are no decisions concerning employees based on performance appraisals. Since job descriptions are developed from information gathered in job analysis, it could be deduced that job analysis activities do not take place at the agency-at least not effectively.

Based on the information provided, students should not be expected to actually create CO A' s mission, its mission statement, its objectives, individual job descriptions, or employee appraisal criteria; however, students' reports should describe the processes that will lead to the development of these items. Particular attention should be given to identifying implementation responsibilities within the suggested processes. Specific approaches may vary among students, but students should provide appropriate support for all recommendations. From a strategic perspective, reports should be evaluated based on whether the proposal will result in a well-articulated mission statement that is regularly reviewed and revised; organizational objectives that flow directly from the mission statement; current job descriptions that reflect the elements of the job that are critical for organizational effectiveness; performance criteria based on these essential elements; and individual employee reward and development decisions based on his/her appraisals.

Operational issues

The primary operational issue concerns making sure individual managers incorporate performance management into the operational management process. Briefly stated, this process involves managers ensuring that subordinates understand their goals, are provided resources and support to accomplish these goals, and are rewarded and developed based on the accomplishment of these goals. If effective strategic processes (as discussed in the previous section) are developed, individual supervisors should have the necessary tools to ensure that the individual goals are appropriate in terms of enabling the agency to achieve its mission; however, supervisors must be diligent in modifying these goals as the organization revises its mission and changes its objectives. Supervisors must also ensure that performance criteria are regularly revised to reflect these changes. In addition, supervisors must make certain that individual reward and additional training and development decisions are based on individual employee appraisals.

Subject: Performance management; Job analysis; Organization development; Long term planning; Case studies

Location: United States--US

Classification: 6200: Training & development; 2310: Planning; 9130: Experiment/theoretical treatment; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 93-95

Number of pages: 3

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 216287521

Document URL: http://search.proquest.com/docview/216287521?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 16 of 100

USE OF A JOB COST SIMULATION TO ENGAGE GEN Y STUDENTS

Author: Lippincott, Barbara; Pergola, Teresa M

ProQuest document link

Abstract:

Introductory accounting courses are generally taught to undergraduate business majors as part of the required basic business core. Many of the students are non-accounting majors and may lack the motivation to study accounting. Most have little work experience and may also lack a frame of reference for the concepts taught in class. While these demographics have made accounting education challenging in the past, meeting the educational needs of the current generation of students, Gen Y students, is proving to be even more of a challenge. Gen Y students grew up with computers, the Internet, beepers, cell phones, MTV, and a proliferation of computer games. Learning styles of this generation are more active and visual than verbal, causing traditional teaching methods to be less effective. For these students to learn, they must be actively engaged and in control of their learning.

Full text:

INSTRUCTORS' NOTES

Recommendations for Teaching Approaches

Objectives

The primary objective of the case is to develop students' understanding of job cost processes and accounting for those processes. To complete the simulation successfully, students must possess a basic understanding of job cost accounting. This simulation may be used to supplement or illustrate classroom lectures or alternatively, may be assigned as a class project. The learning objectives for the simulation are to develop students' ability to:

1. Understand the flow of costs in a job cost production environment.

2. Understand and apply accounting for costs in a job cost production environment.

Implementation Guidelines

This simulation was designed to be used in introductory managerial accounting courses to facilitate student understanding and accounting for production flows in a job costing environment. The simulation can be easily modified to be used in upper level accounting classes by changing the simulation requirements. Suggested changes to modify the simulation are included in a later section of the notes. Our experience indicates that the simulation should be done after job costing has been covered in class. The simulation materials include ©Legos, inventory lists, forms, and instructions. The simulation can be used with pre-built prototypes, or students can build their own prototypes if time permits. Each set of ©Legos is packaged with pictures of possible "product designs" that can be used for this purpose.

The simulation was designed to mimic a real production environment, complete with an inventory manager, job teams, and a cost accountant. Our experience, however, has shown that if students perform only one function they become isolated from the rest of the simulation. We discuss this further in the teaching notes below.

TEACHING NOTES

The first step in the simulation is to pass out and review the simulation instructions with the students. Instructors should stress that the exercise is meant to simulate a manufacturing environment and the processes that occur in that environment. Instructors then designate areas within the classroom to represent the stores warehouse, the production area, and the finished goods warehouse. Instructors should also point out that although inventory management, production, and cost accounting are normally done by unique individuals within an organization, students will perform all three functions to gain experience and understanding of the manufacturing process. Once students are comfortable with the procedures, instructors direct students to begin the simulation by performing the first three procedures in the inventory management instructions.

Inventory Management - Material Receiving

Students performing this function are required to receive, count, and store inventory in the raw material inventory warehouse. The goal of this function is for students to understand that raw materials inventory is made up of different types of material which, in the aggregate, make up the general ledger balance in raw materials inventory. The subsidiary ledgers are the inventory cards, which can be actual cards as they are in this simulation or electronic records that record the same information.

There are thirteen different types of raw materials. Each individual inventory item is delivered to the company packaged in a large ©Ziploc bag with an inventory label attached to the outside of the bag. The inventory label contains the raw material item number that corresponds to the inventory list. Students count and record the amount of inventory on receiving reports and on an inventory cards. They use the inventory list (Exhibit 1) to obtain unit costs and then extend the inventory on the cards. Cards are placed with the inventory item in the stores warehouse. As noted above, we suggest that all students perform this function. Instructors can elect to have the students propose the entry to record the receipt of inventory upon completion of the receiving function or wait until production is complete and do all journal entries at that time. Exhibit 2 contains examples of completed receiving reports and inventory cards for a sample inventory item.

Production Processing - Material Needs

The objective in the production process procedures is for students to understand how direct material and direct labor are assigned to jobs as the actual tasks are performed. They also need to understand that overhead, the factory supervisor, the facilities surrounding them, etc., are not directly associated with their particular job. This should enhance their understanding of the need to allocate overhead since it cannot be directly charged. A final objective is for them to understand that costs accumulate by job. They should gain this understanding by summarizing the production cost on their job cost sheet.

Operationally, instructors begin by assigning students to teams. Each team is issued a job cost sheet, two material requisition forms, and a time card for each member of the team. Each team should either pick a prototype for their product or build one if instructors elect to allow students to create their own product. (For instructional purposes the completed forms for production of a prototype are provided in Exhibit 3). Teams enter job cost information (the job name, product description) on the job cost sheet. Each team member selects one of the job team roles as described in the procedures. Teams now perform the first two instructions as follows.

The team designer analyzes the prototype to determine the material requisition needs. Once material needs are determined, the team fills out the material requisition form, in duplicate, and forwards both copies to the materials storeroom requesting their materials.

Inventory Management - Issuance of Material

Students now "switch" from production to inventory management and complete instructions for issuance of raw materials to production. It is helpful to assign at least two person teams to each raw material and to designate one student from each team as the recipient of the issued material. Instructors direct half the raw material team to issue material based on the material requisitions and the other half to update the inventory cards as material is issued. The recipient can move through the stores warehouse, item by item, until their requisition is complete. Instructors can provide an empty ©Ziploc bag with which to package the requested materials. Once all requisitions are filled, the materials manager signs both copies of the material requisition. Operationally, instructors may direct the team that fills the last item on the requisition form to sign the form and forward a signed copy to cost accounting. The remaining copy returns to production with the material, where it is used as the source document to record raw materials on the job cost sheet.

Production Processing - Actual Production

Students rejoin their teams in production bringing their raw materials and signed material requisition with them. The job coordinator receives the issued material and the team accountant enters the receipt of raw materials on the job cost sheet. Job teams build their product and keep track of their time on individual time tickets. When production is complete, team members total their time and the job accountant records it on the job cost sheet. Time tickets are forwarded to the cost accountant so that payroll can be recorded.

Overhead is applied on the basis of direct labor hours. Direct labor hours are accumulated on the time tickets and are used to calculate the applied overhead for each job. Students compute the amount and record overhead on their job cost sheet. Job coordinators for teams who complete production ship the finished good to the finished goods warehouse and forward the completed job cost sheet, with supporting documentation, to cost accounting.

This process has gone very well in the classroom environment and students really seem to have fun building their products. However, our experience with the simulation resulted in a number of suggestions for more effective implementation of this process. We suggest that once the designer identifies the material needs that instructors send the entire team to pull inventory from the stores warehouse. Assigning this function to one student per team creates a bottleneck in the stores warehouse and leaves other team members sitting and waiting for their materials. We have also found that students do not like setting their own labor rates and times. They prefer a more structured approach in which they are told the hourly rate of pay and how much total labor should be used to build their product. In response to their suggestions, we suggest that instructors assign the number of hours that each product should use and then allow students to allocate the hours among the team members. Instructors can elect to assign twenty labor hours among the teams, which results in allocated overhead equal to actual overhead, or can change the amount of actual labor hours so that overhead is under or over applied at the end of the period.

To enhance understanding of how individual jobs make up the work-in-process and finished goods inventory balances, instructors can direct one or more teams to stop production prior to completion. This results in one or more jobs that remain in work-in-process while the rest of the jobs move to finished goods. After the teams record the movement of the jobs from production, students can visually see the jobs supporting the general ledger balance for each type of inventory.

The professor, acting as the factory supervisor, provides help to groups as needed. Students have done well with the material requisitions, building the product, and accumulating material and labor costs on job cost sheets, but sometimes need help with the overhead allocation.

Cost Accountant

The objective for this function is for students to understand how to account for the tasks they just performed and for the movement of materials and jobs throughout the production process. Team accountants summarize their job cost sheet in a T account on the board, labeling direct material, direct labor, and overhead. As a class, students now assume the role of cost accountant and use the professor as their "scribe". Students direct the professor to record the transactions described in Table 3 of the instructions. (Sample journal entries appear in Exhibit 3). These functions are performed as a group to allow students to synthesize their individual group activities into a single set of summary journal entries. Instructors begin by recording the receipt of raw material, unless previously recorded during the initial receipt of inventory. Labor is recorded for both hourly workers, from the time tickets, and for salaried personnel, found in instruction 2 of Table 3. Overhead costs are recorded based on the information in time 3 of Table 3. These first three instructions represent the accumulation of product costs.

Instructions 4 through 7 of Table 3 involve recording the application of product costs to production. Instructors start with raw materials using material requisitions as the source documents and also refer to the T accounts summarizing the jobs that the team accountants previously recorded on the board. This helps students to visually see that the summary entry is the sum of all the individual amounts applied to each job. The application of labor involves both direct time from time tickets and indirect time recorded with the payroll. Direct time is charged directly to work-inprocess, while indirect time is charged to manufacturing overhead. Overhead is applied on the basis of direct labor hours, the allocation base used in the predetermined overhead rate. Finally, students direct the professor to record the movement of any completed jobs out of work-in-process into finished goods. As the entries are prepared, instructors post them to T accounts and then have the students compute the balances. Students identify which jobs support which balances at the end of the exercise.

At this point, instructors direct students to select a job for sale and to compute a selling price equal to cost plus a 20% markup. Students propose the journal entries to record the sale. Finally, students analyze the manufacturing overhead account and dispose of any over or under applied amounts.

Students sometimes struggle with journalizing the processes they have just completed. Instructors may have to prompt students with questions to get them to visualize what occurred. For example, if students cannot record the application of materials to production, instructors should ask questions about where they got the materials and what they did with them. Students will remember that they got them from the "raw materials section of the classroom" and that they took them to the "production area of the classroom". This helps them logically derive the entry.

Experiential Classroom Use

The case has been used in ten sections of undergraduate managerial accounting courses. The simulation takes approximately forty-five minutes to an hour to complete. The simulation was first performed in two sections of managerial accounting from which the authors solicited verbal feedback to help perfect the implementation. In subsequent semesters, adjustments were made and an assessment questionnaire was administered to the students. The ratings for the specific questions were as follows (n = 48):

Did this project help you understand a job cost environment?

It received a rating of 4.15/5.00 where a 5 is "quite a bit" and a 1 is "not at all" (SD = .61849).

Did this project help you understand accounting in a job order cost environment?

It received a 3.98/5.00 where a 5 is "quite a bit" and a 1 is "not at all" (SD = .60105).

How did this project compare to learning about job order costing by reading the book?

It received a 4.50/5.00 where a 5 is "quite a bit" and a 1 is "not at all" (SD = .79894).

How did the project compare to learning about job costing by hearing a lecture?

It received a 4.50/5.00 where a 5 is "quite a bit" and a 1 is "not at all" (SD = .71459).

How did this project compare to learning about job order costing by doing homework problems?

It received a 4.20/5.00 where a 5 is "quite a bit" and a 1 is "not at all" (SD = .87418).

The student comments were very positive (summarized in Exhibit 4).

Student feedback indicates that students felt the simulation enhanced their understanding of job costing and accounting for job costing and was much better than reading the text, hearing a lecture, or preparing homework answers. Students also reported that visualizing the process really enhanced their learning and kept them from just memorizing the steps.

Simulation modifications

The simulation can be modified for use in upper level accounting classes. Suggested modifications include (1) assigning the simulation after covering classroom material on job costing, process costing, and activity-based-costing; have the students design the costing system or alternatively, critique and suggest improvements to the production processes and/or the accounting procedures, (2) assign an additional module in which students must identify indirect production costs and design a system for application of overhead to production; have students calculate the rate or rates and apply overhead based on their system design, (3) delete the forms from the simulation and have students design the forms necessary to document to flow of costs, and/or (4) expand the disposition of overhead section by including the assumption that over or under applied overhead is material. This elevates the disposition of overhead to upper level accounting in which students must prorate the over or under applied overhead among inventory and cost of goods sold.

CONCLUSION

This simulation attempts to engage Gen Y students in the learning process by using a handson approach to manufacturing and accounting for production in a job cost environment. It takes less than one class period and seems to give students a frame of reference for production processes. Post-implementation survey responses indicate that students liked the simulation, felt that it enhanced their understanding of production processes and accounting for production in a job cost environment. They preferred this method over lectures, reading the text, and doing homework. The simulation is appropriate for use in managerial accounting courses and in upper level accounting courses, with modification.

Subject: Teaching methods; Cognitive style; Motivation; Generation Y; Simulation; Cost accounting; Case studies

Location: United States--US

Classification: 9130: Experiment/theoretical treatment; 9190: United States; 8306: Schools and educational services

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 97-113

Number of pages: 17

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables References

ProQuest document ID: 216311817

Document URL: http://search.proquest.com/docview/216311817?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 17 of 100

HEDGING WITH FOREIGN CURRENCY OPTIONS AT PEARSON INC

Author: Dow, Benjamin L; Kunz, David

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Abstract:

Pearson Inc is a US based company specializing in corporate travel services. Recent product line additions have exposed the company to more significant foreign currency exchange rate risk. In addition, the unique structure of Pearson's business model has led the company president, Mike Pearson, to consider currency options in addition to traditional forward currency hedges. Pearson would like an evaluation of the company's increased foreign currency exposure and a proposed strategy for eliminating unwanted exchange rate risk before the next product catalog is published. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

Tasks to Be Performed

1. Determine a probability distribution for the total number of international trips selected from the July 2007 catalog by filling in the Joint Probability Distribution Table (Table 3) below. Calculate the corresponding number of international trips selected for each potential outcome.

Given the information from Table 1 and Table 2, there are 9 possible outcomes. For example, the probability of below average sales and a low acceptance rate is 6% (The Joint Probability of A and B is equal to the Probability of A * Probability of B). The corresponding level of international trips taken is 150 (If below average sales occurs only 1500 Tier Three vouchers will be sold and if the acceptance rate is low (10%), then only 150 international trips will ultimately be selected).

2. Calculate the expected number of Euros needed in 2008 to support the number of International trips selected from the July 2007 catalog based on the joint probability table above (The average cost per international trip s 1800 Euros). What is the minimum number of Euros needed? What is the maximum number of Euros needed?

3. Use the probability distribution of Euros needed from question 2 to determine the US dollar cost impact of purchasing Euros in the spot market under different exchange rate scenarios. The three exchange rate scenarios to be considered are defined as "Strong Dollar", "Stable Dollar" and "Weak Dollar". Calculate the expected US dollar cost impact and the minimum and maximum US dollar cost impact under each exchange rate scenario. Assume a "Strong Dollar" scenario would imply an average exchange rate of $1.25/lEuro. A "Stable Dollar" scenario would imply an average exchange rate of $1.34/1 Euro. A "Weak Dollar" scenario would imply an average exchange rate of $1.45/1 Euro. For example, if the dollar remains stable and Euros needed during 2008 are purchased at an average cost of $1.34 there would be "no impact" on costs as anticipated costs were also $1.34. If the average cost for Euros needed during 2008 are $1.45 ("Weak Dollar" scenario), the impact on costs would be $0.11 higher per Euro purchased.

If the dollar weakens and the average cost of Euros purchased increases to $ 1 .45/1 Euro, the total US dollar cost impact would be $0.11 higher per Euro purchased. If the dollar strengthens and the average cost of Euros purchased decreases to $1.25, the total US dollar impact would be $0.09 less per Euro purchased (i.e. Pearson's cost per trip is lower than originally expected).

4. Calculate the US dollar cost impact under the given exchange rate scenarios of taking a long position in 1.8 million Euro Call options with an exercise price of $1.34 and a 6 month maturity date. Compare the cost impact of hedging with call options versus an assumed cost of $1.34 per Euro under the different exchange rate scenarios. Assume the premium on the call options is 2% of the notional value of the contract. (The contract is for 1.8 million Euros with an exercise price of $1.34. The notional value of the contract is $2.412 million. The premium paid is $48,240)

The US dollar cost impact of the forward hedge is a function of Euros purchased versus the number Euros needed and the exchange rate movements between the forward rate and spot rate in the future. In cases where the spot rate in the future is less than the forward rate ("Strong Dollar" scenario), actual costs may be higher if too many Euros are purchased and must be later sold at a loss, or actual costs may be less than anticipated if more Euros are needed than purchased forward and the difference is purchased in the spot market at a lower cost. At the extreme, consider the outcome that requires 3.15 million Euros (above average sales and a higher than anticipated acceptance rate). Pearson's basis is $1.34 per Euro. If 3.15 million Euros are needed and the forward hedge is use to purchase 1.8 million Euros, then an additional 1.35 million Euros are needed. Under the "Strong Dollar" scenario, the additional Euros needed are purchased in the spot market for $ 1 .25 ($0.09 less than the basis). This represents a case where costs are $121,500 ($0.09 * 1.35 million Euros) less than anticipated. However, if the scenario is one where the average exchange rate is $ 1 .45 ("Weak Dollar") then the additional 1.35 million Euros must be purchased at $0.1 1 more than the basis, representing a higher than anticipated cost of $148,500 ($0.1 1 * 1.35 million Euros).

5. Calculate the US dollar cost impact under the given exchange rate scenarios of taking a long position in 1.8 million Euro Call options with an exercise price of $1.34 and a 6 month maturity date. Compare the cost impact of hedging with call options versus an assumed cost of $1.34 per Euro under the different exchange rate scenarios. Assume the premium on the call options is 2% of the notional value of the contract. (The contract is for 1.8 million Euros with an exercise price of $1.34. The notional value of the contract is $2.412 million. The premium paid is $48,240)

Currency options allow the buyer the right, but not the obligation, to purchase (a call option) or sell (a put option) a currency at an agreed exchange rate (exercise price). For this right without obligation, the buyer of the option pays a premium, making currency options a more expensive alternative to forward contracts. If there was an adverse movement in the exchange rate compared to the exercise price, the option holder would allow the option to expire unexercised. The holder could then buy or sell directly in the spot market at more favorable rates.

For example, if actual sales are below average and a low acceptance rate is realized, then Pearson will need to purchase 270,000 Euros. Their basis is an anticipated cost of $ 1 .34 per Euro. If they decide to hedge by buying 1.8 million Euros call options with an exercise price of $1.34, they have the option, but not the obligation, of purchasing 1.8 million Euros at $ 1 .34. The premium associated with the option is assumed to be 2% of notional value of the contract and is paid in advance. The notional value of 1 .8 million Euros at an exercise price of $1.34 is $2.412 million. The premium is calculated as 2% of $2.412 million or $48,240. If the "Strong Dollar" scenario occurs, Pearson will choose to let the options expire and purchase the 270,000 Euros needed in the spot market at a price of $1.25/Euro. However, the actual cost of the Euro is $0.09 less than anticipated. The impact on Pearson's anticipated costs are $48,240 higher for the call premium but $24,300 ($0.09 * 270,000) less for the 270,000 Euros actually needed. The total impact on anticipated costs would be $23,940 ($48,240-$24,300) more than anticipated assuming below average actual sales and a low acceptance rate. Under the "Weak Dollar" scenario, the average exchange rate is $1.45/Euro. Having purchased the right to buy 1.8 million Euros at $1.34, Pearson will exercise the call options and purchase 1 .8 million Euros even though only 270,000 Euros are needed. The excess 1 .53 million Euros will be sold in the spot market for $ 1 .45. The total impact on anticipated costs will be the premium paid for the call options ($48,240) minus the profit from the sale of excess Euros ($0.11*1.53 million Euros) of $168,300. The total impact on costs under the "Weak Dollar" scenario will be a negative $ 120,060 (costs will be less than anticipated).

6. What conditions represent the greatest risk to Pearson if he chooses to leave the exchange rate exposure un-hedged?

The biggest impact on costs occurs solely from exchange rate movements. If the Euro weakens ("Strong Dollar" scenario) then Pearson's costs will be much lower than anticipated and profitability will increase. If the Euro strengthens ("Weak Dollar" scenario) then Pearson's costs will be much higher than anticipated and profitability will decrease. The more Euros needed, either from higher than anticipated international acceptance rates or above average sales, the larger the impact. This is precisely the risk Pearson is hoping to avoid.

7. What conditions represent the greatest risk to Pearson if he chooses to implement a forward hedge of 1.8 million Euros?

The forward hedge shifts the impact of exchange rate movements but does not eliminate them. The two by two matrix used by Pearson in the case clearly demonstrates the conditions that unfavorably impact costs. Fewer than expected international trips combined with a weakening of the Euro as well as larger than expected international trips combined with a strengthening of the Euro will both adversely impact costs.

8. What conditions represent the greatest risk to Pearson if he chooses to implement an options hedge?

Pearson pays $48,240 upfront (Call premium) for the right, but not obligation to purchase Euros at $ 1 .34. This cost is somewhat similar to an insurance policy premium. If the Euro weakens, then Pearson is still able to take advantage of favorable exchange rate movements by purchasing Euros in the spot market at a lower price and the insurance is not needed. The option hedge provides the largest benefit over the forward hedge under the "Strong Dollar" scenario. However, if the "Weak Dollar" scenario occurs, Pearson's call options (a claim is filed) allow for 1 .8 million Euros to be purchased at the exercise price of $1.34. If less than 1.8 million Euros are needed, the excess Euros can be sold for a profit. If more than 1.8 million Euros are needed, Pearson would have to purchase the additional Euros needed at the higher price. For the cost of the premium, exchange rate risk is reduced or eliminated for most of the possible outcomes. The biggest risk occurs under the "Weak Dollar" scenario only if Euros needed exceed what is expected.

9. Make a recommendation to Pearson regarding the advantages of an option hedge in terms the general impact on profitability, not just costs.

The option hedge provides a number of desirable results, albeit for an initial upfront premium of $48,240. Call options shift most of the risk to situations when there is a greater than anticipated number of Euros needed and the Euro has strengthened. In situations where vouchers sold exceed the forecast, revenues will be better than projected. Larger initial margins on international trips will also defray some of the impact on costs for situations where the selection rate is high. If Pearson decides to utilize the call option hedging strategy, he should realize that paying an upfront premium does not remove all of the risk, but shifts downside exposure to situations under which Pearson is best able to financially absorb it.

Subject: Hedging; Foreign exchange rate risk; Business travel; Risk exposure; Case studies

Location: United States--US

Company / organization: Name: Pearson Inc; NAICS: 561510

Classification: 9130: Experimental/theoretical; 3500: Foreign exchange administration; 8350: Transportation & travel industry; 9190: United States

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 115-121

Number of pages: 7

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Diagrams Tables Graphs References

ProQuest document ID: 216300315

Document URL: http://search.proquest.com/docview/216300315?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 18 of 100

E-TAILING OFFICE FURNITURE: TOO MANY CLAIMS AT OFC

Author: Douglas, Michael J; Kyper, Eric S

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Abstract:

In this claims processing case, evidence is presented to support a critical analysis of claims processing problems. Currently claims are not processed in an efficient manner. Students need to critically analyze the current claims handling process and present a revised version in their solution. Data is provided regarding the number of claims, types of claims, claims processing error rates, catalog information, database sources, and database updates. The data is sufficient to give clues as to the sources and variations of claims. While multiple solution approaches will satisfy the case requirements, solutions should be similar in their general form and conclusions. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

The case context is claims processing for an on-line retailer. A general knowledge of database concepts, statistics, and general business knowledge is sufficient to solve the case. Students should:

* Define the problem.

* Outline possible causes of the problem.

* Recommend solutions to reduce claim rates.

Problem definition: OFC is receiving a large number of claims; claims take a long time to resolve.

CASE SOLUTION

1: What are the claims, and how many are there?

There are two general types of claims. Shipping claims and Business Office claims. First, graph the shipping claims for the given case data.

Observations from Figures 1 and 2: Highest numbers of shipping claims are in the short/over category (26%) . Within the short/over category the majority of claims arise from problems with suites (79%).

Next graph the business office claims.

2: How are claims processed?

Construct a process diagram to better observe the process (see figure 5).

3: Is the current process efficient?

The current process is not efficient. The process is rife with redundancy (i.e. claims are forwarded to three separate offices and then back to claims supervisor, then possibly to general manager, etc.). This results in no precise accountability, and too many people involved.

4:What can be said about the workload/quality of the business office clerks? Is the business office over or under staffed?

Next identify the critical processes, relationships between processes, and potential causal factors.

The scatterplots suggest that the pricing error rate is related to both work volume and work complexity. This may help explain the higher error rate of Clerk 2, who also has a higher workload and a higher level of complexity. This also suggests that reducing individual work rate and/or complexity by increasing the number of personnel may lower the error rate.

5: Is the current database design sufficient?

The current database design in not sufficient because of the following problems:

* Large number of errors

* Poor claims-resolution process

* Frequent product changes

* Poor product documentation

* Uneven processing loads

IDENTIFICATION

Critical processes: Claims Processing, Product Definition, Product Documentation

Relationships: Shortage/Overage and Pricing Errors (possibly also Invoicing, Wrong Order, PO, and Discount)

Potential Causal Factors (Shortage/Over, Pricing): Fishbone Diagram

Potential solutions include:

1. Redesign the claims-resolution process. Simplify the process and consolidate databases.

2. Formalize and control the product definition and pricing processes. Implement clear product definitions, clear and structured pricing procedures, and reduced frequency of product/price changes.

3. Formalize and control the product definition and pricing documentation. Update databases as part of the definition/pricing processes. Implement a central database to help eliminate update anomalies.

4. Equalize the workload and complexity of claims process by clerks.

5. Consider hiring an additional pricing clerk.

6. Training of claims processing personnel in product/pricing definitions, data retrieval, and document verification.

7. Evaluation and monitoring of:

x control charts on number of claims (major categories) and claim-processing times.

p control charts on Shipping and Pricing error rates.

Project control schedules on document updating and verification.

Subject: Electronic claims processing; Office furniture; Electronic commerce; Case studies

Location: United States--US

Company / organization: Name: OFC Corp; NAICS: 334119

Classification: 9130: Experimental/theoretical; 8390: Retailing industry; 9190: United States; 5250: Telecommunications systems & Internet communications

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 123-130

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables

ProQuest document ID: 216277607

Document URL: http://search.proquest.com/docview/216277607?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 19 of 100

WHAT IS THE RIGHT THING TO DO? THE CASE OF RURAL BANKING

Author: Breazeale, Jonathan; Bexley, Jim

ProQuest document link

Abstract:

The student assumes the role of the CEO of City State Bank who must decide whether to ignore a large number of customer complaints at a local branch, close the branch in question, or take action to alleviate the problems that customers are experiencing. The CEO has made some preliminary projections associated with addressing the customer concerns, but he needs to consider the advantages and disadvantages of each alternative in great detail. Analysis of the problem is more qualitative in nature and requires only one simple computation by the student; however, discussion of the situation should be rich in the areas of overinvestment, identification of marginal cash flows, and spillover effects. Although the case is derived from an existing bank and a real decision, City State Bank is a fictitious entity. Other information in the case has also been altered to provide confidentiality. [PUBLICATION ABSTRACT]

Full text:

INSTRUCTORS' NOTES

Suggested Questions for Students

The suggested approach to presenting this case is to provide students with questions at the beginning of the class period that help guide their thinking and class discussion with regard to the decision at hand. If these questions are not presented to the students prior to class, it is interesting to poll the class (prior to any discussions) on their opinion as to whether or not the CEO should accept the negative NPV project. Poll the class again at the end of the period to determine who may or may not have changed their mind. Suggested questions and the discussion points most likely to arise are now presented:

1. Given the information that Bill collected, what is an appropriate weighted average cost of capital (WACC) for City State Bank?

Of course, the formula for calculating the WACC is

WACC = w^sub d^r^sub d^(1-t) + w^sub e^r^sub e^

where w^sub d^ is the percentage of debt going forward to finance new assets, r^sub d^ is the current cost of borrowing the firm would pay to loan money or issue bonds, t is the firm's marginal tax rate, w^sub e^ is the percentage of equity used to finance any new asset, and re is the cost of equity capital. The student must first assume that the firm will finance the security improvements with debt/equity in a manner consistent with its current capital structure (80/20 respectively). Under that assumption, w^sub d^ is .8 and w^sub e^ is .2. The borrowing rate given in the case is 5.0% (r^sub d^), and the marginal tax rate (t) is 35.0%. The main emphasis of this calculation is to have the student calculate the cost of equity capital (re) using the rearranged dividend growth model

r^sub e^ = Div/P^sub 0^ + g

where Div is the anticipated dividend payment over the next year, P^sub 0^ is the current price of the firm's common shares, and g is the expected infinite dividend growth rate. Assuming that dividends will be adjusted upward at the same rate as CSB' s earnings, the average of the provided analyst earnings growth estimates would be a reasonable (although probably inflated somewhat) value for g. Given the assumptions contained herein and the information provided in the case, r^sub e^ = 2.26/30 + .025 = .10033.

Substituting in the WACC formula:

WACC = .8(.05)(.65) + .2(.10033) = .046 = 4.6%

2. Given the forecasted cash flows presented in the case, what is the NPV of the proposed lobby renovations?

3. What are the benefits of closing the branch? What are the ramifications?

The benefit of closing the branch is analogous to "ripping the band-aid off. The branch is barely on the verge of profitability. If the decision is to ignore the petition, CSB might be better off riding the wave of bad press now rather than later. A ramification is that CSB is going to be the target of a lot of bad publicity. The press is going to ask them why they closed a rural branch that was once profitable and open for business. Isn't that the core of what CSB is all about? Additionally, CSB is sealing the economic fate of an entire community - which will now be unable to attract new business to the area.

4. What are the benefits of ignoring the petition? What are the ramifications?

The main benefit of ignoring the petition is that this is the option that is in the best interest of the shareholders. The ramifications include continued bad press. While this is the "status quo" option, there may still be spillover effects from such bad publicity in other markets in which CSB operates.

5. What are the benefits of opening the branch again for lobby operations? What are the ramifications?

The benefit of opening the doors is that CSB comes across looking like "the good guy." CSB' s predecessor closed the lobby, and they are correcting that mistake. It may have taken them a while to do it, but they made a commitment to the town of Jones, its residents, and its businesses. They will have given Jones and second chance to grow economically. However, this option is not in the best interest of CSB' s shareholders. It is not easy to abandon the fiduciary responsibility of being a good steward of investor dollars. Is this a noble enough cause? The tsunami and hurricane Katrina seemed to have been. Contributions to those causes were negative NPV, yet firms gave billions in shareholder dollars. Firms give money to the United Way, Salvation Army, the Red Cross and other organizations as well. Where is the line between being a good steward and "doing the right thing?"

6. Which option should the CEO embrace? Why?

Answers to this question will vary.

7. What is the most difficult part of the capital budgeting calculation for the CEO?

The most difficult part of the capital budgeting calculation is forecasting the marginal cash flows from the competing spillover effects, damaged reputation, bad press, etc. The CEO really would have no support for these projections when standing in front of the board.

LEARNING POINTS

* It's not always easy to know the "right thing to do". It's much harder than simply applying a rule from a textbook.

* It is difficult to estimate future cash flows! In fact, it is the most difficult (and important) part of the capital budgeting process.

* Rural operations are not always analogous to the "typical" Wall Street case. Here, CSB effectively gets to decide whether an entire community lives or dies.

* The press can have an impact on decisions that affect shareholders. Specifically, in the case of CSB, the press can create unanticipated spillover effects that are not account for in the valuation calculations.

* Input from local managers vs. the ivory tower of centralized management- listening to folks in the field is important. Shouldn't the CEO have asked the folks who worked at the branch for their input?

* Repairing goodwill with customers - can marketing make up this gap?

* Overall influence on the town's economy - Is the town going to make it. . .even with CSB' s investment in the lobby operation?

EPILOGUE

It is rare to have an epilogue in a fictitious case, but as of the date of this article, the course of action the CEO of the actual bank has chosen is to open the bank lobby one day a week. This does not fully accept the terms of the petition, but the small commitment to the community may provide some temporary insights into the validity of the CEOs projections. CSB will not attract as many customers back to the branch under this strategy as they would have had they opened full-time; however, this decision will provide a lot of information to CSB' s management team on whether or not they should open the branch continually for regulation operations.

Subject: Community banks; Role playing; Capital budgeting; Decision making; Case studies

Location: United States--US

Classification: 9130: Experiment/theoretical treatment; 3100: Capital & debt management; 9190: United States; 8100: Financial services industry

Publication title: Journal of the International Academy for Case Studies

Volume: 15

Issue: 2

Pages: 131-135

Number of pages: 5

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 10784950

Source type: Reports

Language of publication: English

Document type: Feature, Business Case

Document feature: Tables

ProQuest document ID: 216311894

Document URL: http://search.proquest.com/docview/216311894?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2009

Last updated: 2013-09-09

Database: ABI/INFORM Complete

Document 20 of 100

SECTION 1. FOCUS ON KNOWLEDGE MANAGEMENT, TECHNOLOGY TRANSFER AND INFORMATION TECHNOLOGY - Chapter 1. Telemedicine Application of Information Technology in Cancer Cure Practice

Author: Krishnamoorthy, Bala

ProQuest document link

Abstract:

There is insufficient data in India to assist the needy to understand where and how to seek medical help, and to evaluate if the assistance required has been correctly and sufficiently delivered. The constant search for an alternate medical practitioner for second advise and even alternate cures are largely prevalent due to the uncertainty arising from data that is not well documented. The Tata Memorial Hospital (TMH) is the largest cancer hospital in the country, in terms of number of patients registered. In 2006, about 28,000 patients registered and 18,000 were found to have contracted cancer. About 60% of the 18,000 patients were treated at TMH. Telemedicine has the capability of bringing state-of-the-art healthcare to isolated areas, enabling delivery of medical services to sites that are at a distance from the provider. This case study is the first link wherein the practice of telemedicine is evaluated as handled by the TMH.

Full text:

CASE LEAD

The room is spacious, with curtains drawn, and soft lighting. Several bright-eyed children are engrossed in their activity. One child is busy using yellow building blocks to erect a tower. Another hugs fluffy dolls. A third child is furiously pedaling his tricycle. It is indeed difficult to believe that these children are suffering from cancer. This is the children's ward in the Tata Memorial Hospital (TMH), Mumbai, a premier institution devoted to the prevention, diagnosis, treatment and research in various types of cancer. It is a teaching hospital, all set to become a deemed university. There is rising in incidence of cancer in men owing to the use of tobacco, and a high rate of cervical cancer in women. These cancer types are not only entirely preventable but curable if diagnosed early. Most of the cancers are lifestyle related: among men, because of addiction to tobacco; cervical cancer among women due to early marriage, malnutrition, repeated pregnancies, chronic infection and poor hygiene; and breast cancer among women who married late, had fewer children and did not breast-feed their infants.

Doctors and researchers at TMH, claim that a "revolution" has taken place in the treatment of childhood cancers. Patients go through the treatment regime "enthusiastically" and 75 per cent of them are cured completely. The revolution is not confined to the treatment of children, but of adults as well. This has been accomplished by multi-modal treatment involving surgery, chemotherapy (treatment with drugs) and radiotherapy (treatment by radiation). Radical surgery has given way to minimal surgery. In a majority of cases, the organs affected are no longer removed. In 70 per cent of breast cancer cases, the breast is retained. In throat cancer, the sound box is not removed, and the patient retains the faculty of speech.

There is insufficient data in India to assist the needy to understand where and how to seek medical help, and to evaluate if the assistance required has been correctly and efficiently delivered. The constant search for an alternate medical practitioner for second advise, and even alternate cures are largely prevalent due to the uncertainty arising from data that is not well documented. Our case study is the first link wherein the practice of telemedicine is evaluated, as executed by the TMH.

HISTORY AND EVOLUTION OF THE TATA MEMORIAL HOSPITAL

The Tata Memorial Hospital is the largest cancer hospital in the country in terms of the number of patients registered. In 2006, about 28,000 patients registered and 18,000 were found to have contracted cancer. About 60 per cent of the 18,000 patients were treated at TMH. The Tata Memorial Hospital was initially commissioned by the Sir Dorabji Tata Trust on 28 February 1941 as a center with enduring values and mission for concern for the Indian people.

In 1952, the Indian Cancer Research Centre was established as a pioneer research institute for basic research - later called the Cancer Research Institute (CRI). In 1957 the Ministry of Health took over the Tata Memorial Hospital.

The transfer of the administrative control of the Tata Memorial Centre (Tata Memorial Hospital & Cancer Research Institute) to the Department of Atomic Energy in 1962 was the next major milestone. The Tata Memorial Hospital and Cancer Research Institute merged as the two arms of the Tata Memorial Centre (TMC) in 1966 as a classic example of private philanthropy augmented by government support, with a mandate for service, education and research in cancer.

In 1962, in order to give a bigger thrust to TMH's programmes, with radiation playing a major role, the administrative control of the TMH was transferred to the Department of Atomic Energy (DAE), when Dr. Homi J. Bhabha was Chairman of the Atomic Energy Commission. The TMH is now fully supported and governed by the DAE. By 1965-66, the ICRC, later renamed the Cancer Research Institute (CRI), merged with the TMH to become the Tata Memorial Centre (TMC). This meant that basic research was added to clinical research, service, education and training. The TMC is the overarching institution under which come the TMH and the CRI.

TMH is India 's largest cancer centre and a university teaching hospital. TMH is funded by the Government of India and has developed as an advanced centre for training, research and education in cancer. Every year, some 20,000 new cases of cancer are seen. Multi modality treatment options are provided by teams-GI unit 2200 new cases/year, 700 major surgeries/ year. Every year, nearly 30,000 new patients visit the clinics from all over India and neighboring countries. Nearly 60 percent of cancer patients receive primary care at the hospital of which over 70 percent are treated almost free of any charges. Over 1000 patients attend the OPD daily for medical advice, comprehensive care, or for follow-up treatment. During 2003, over 20,000 new cases were registered, in addition to over 13,000 referral cards issued for special investigations only. Nearly 8,500 major operations are performed annually and 5,000 patients treated with radiotherapy and chemotherapy annually in multi-disciplinary programs delivering established treatments. At TMH, evidence based medicine is the keystone of our endeavor. Apart from patient care and service, clinical research programs and randomized trials contribute increasingly to improved delivery of care and the highest standards of work ethics.

NATURE OF THE DISEASE

Cancer is the name given to a large group of diseases, all of which have one thing in common: cells that are growing out of control. Normally, cells that make up all of the parts of our bodies go through a predictable life cycle-old cells die, and new cells arise to take their place. Occasionally, this process goes awry, and cells begin to multiply out of control. The end result is a mass of cells, called a tumor.

There are several major types of cancers: Carcinomas form in the cells that cover the skin, or line the mouth, throat, lungs and organs; Sarcomas are found in bones, muscles, fibrous tissues and some organs; Leukemia is found in the blood, bone marrow, and the spleen; and lymphomas are found in the lymphatic system. Cancer often takes many years to develop. The process typically begins with some disruption of the DNA of a cell, the genetic code that directs the life of the cell. There can be many reasons for disruptions, such as diet, tobacco, sun exposure, reproductive history or certain chemicals. Some cells will enter a precancerous phase, known as dysphasia. Some cells will progress further to the state of carcinoma in situ, in which cancer cells are restricted to a microscopic site, surrounded by a thick covering and do not pose a great threat. Eventually, unless the body's own immune system takes care of the wayward cells, a cancer will develop. It may take as long as 30 years for a tumor to go through the entire process and become large enough to produce symptoms.

Many primary tumors cause a local swelling, or lump, if they arise at a visible or accessible part of the body, such as skin, breast, testicle or oral cavity. A typical swelling due to a cancer is initially painless, though ulceration (skin breakdown) can occur, which may then become painful. The aim of cancer treatment is to cure the patient and save life. In cases where complete cure is not possible, treatment aims to control the disease and to keep the patient normal and comfortable as long as possible.

The treatment of each patient is designed to suit an individual, and depends on the age of the patient, stage and type of disease. There may be only one treatment, or combination of treatments. There are four main modalities of treatment: surgery, radiation therapy, chemotherapy, hormone therapy and immunotherapy. Surgery and radiotherapy aim at eradicating the disease at the primary site (site of origin) of cancer whereas chemotherapy, hormone therapy and immunotherapy deal with disease which may have spread outside the site of the origin of cancer. Surgery is the most important part of cancer treatment.

Surgery remains the vital form of treatment along with radiation therapy and chemotherapy. The strategies for early diagnosis, treatment management, rehabilitation, pain relief and terminal care have been established in a comprehensive and multidisciplinary approach for total cancer care programme. In surgery, concepts have changed, taking into account the biology of cancer. Radical surgeries have yielded place to more conservative surgery with the very important objective of quality of life, conserving function of the organ without compromising overall survival outcomes.

Radiation therapy has also made rapid advances because of high technology, precision, computerization and newer isotopes for therapy. Chemotherapy has played a very major role, with new drugs and clinical protocols investigated in clinical trials. TMH was the first centre in the country to initiate bone marrow transplant in 1983. This was possible due to better total supportive care using newer antibiotics, nutrition, blood transfusion support and nursing. Another important area of progress over the last few years has been radiological imaging techniques using ultrasound, CT scanners, MRI and more dynamic real time nuclear medicine scanning and the PET scan. A "first in India" PET CT scanner has been procured to make this cutting edge technology available for cancer management.

TMH ACCREDITATION PROGRAMME

The Tata Memorial Hospital has a long standing reputation for providing leadership and quality health services in the field of oncology. To further establish its credentials and maintain its leadership role, the institution has opted to be accredited by an agency of international credibility. Tata Memorial Hospital perceives accreditation as a tool for introspection and management, rather than a marketing exercise. Considering the efforts and costs involved, a conscious decision was taken to accomplish the task of accreditation over a period of time, and in phases. The main features of the accreditation process are orientation and motivation of staff, review of infrastructure, layout for safe practices, equipment, calibrations, controls, human resources, credentialing, privileges, documentation of standard operation procedures, ensuring patient access, patient safety, patient confidentiality, accuracy of investigations including traceability, institution of appropriate treatment, evidence of based medicine, clinical pathways, measurement of quality of outcomes, recording of complaints/suggestions and conflict resolution and grievance reprisal.

Dr. Rekha Batura during the interview for the case study, explained the recent efforts to enhance the medical services mentioned about the procedure of filling up a questionnaire by the patients while at the hospital. The questionnaire is collected and analyzed for future improvements. Analysis of the questionnaire revealed that patients are happy with the facilities at Tata Memorial Centre. Patients have frequent complaints about inadequate time spent by the doctor with them. There is an unavoidable waiting time of 7-8 days for patients which we try our level best to reduce. We are also working on a team of volunteers consisting of psychologist, medical social worker, to interact with the patients in a program called patient care. As a majority of patients in our hospital come from the lower middle class, they have difficulty in understanding what the doctor says, and to interpret the same. We have developed guidelines for patients, that are very comprehensive in three languages, Hindi, Marathi and English.

The Outpatient Departments of Tata Memorial Hospital cater to the evaluation and diagnostic needs of patients seeking treatment. There are two discrete outpatient departments to cater to the needs of general and private patients. Located in the main building, the private outpatient department has been renovated in 2003, and is currently operational. The major objectives of the design were patient segregation, registration and reception, consultation and examination, diagnostic services, site/service-wise grouping of OPD clinics, introduction of dedicated examination rooms for each site/service, waiting area comfortable for patients and attendants.

COMPUTERIZATION OF MEDICAL RECORDS

In line with recent advances in information technology, the Tata Memorial Centre has established comprehensive computerization of medical records, material management and administration and also improved communication by widening the electronic mail and internet facilities.

Training Centre for Cancer Education-The Tata Memorial Centre is a recognized training centre for cancer education and research by national and international organisations such as WHO, IAEA and UICC. Tata Memorial Hospital is also a post-graduate teaching centre and is affiliated to the University of Mumbai, National Board of Examinations and Maharashtra University of Health Sciences. Every year, 80 post-graduate students register with the Centre for doing their Master's or Doctorate courses. There are about 400 students undergoing training every year in medical and non-medical fields in long and short term courses.

TELEMEDICINE INTERVENTION IN THE DEVELOPED / INDUSTRIALISED COUNTRIES

Patients undergo automated, home-based symptom monitoring either by telephone or the internet, depending on preference, coupled with telephonic care management by a clinical specialist. Patients complete questionnaires via the internet or undergo standardized interviews via telephone measuring depression, pain, quality of life, and other patientreported variables twice weekly for approximately one month, once weekly for two months, twice a month for three months, and then once a month for six months. A clinical specialist trained in treating symptoms of pain and depression also contacts patients by phone to assess symptom severity and initiate treatment. A follow-up call is made at 1-2 weeks to assess symptom severity, adherence, and adverse effects. Patients with depression receive two additional follow-up calls in the first 12 weeks. The clinical specialist also calls the patient when automated monitoring indicates inadequate symptom improvement or side effects, or the patient requests to be contacted. The clinical specialist works with the patient's regular doctor in adjusting medicines and treatment for symptoms as needed. Patients who do not complete their scheduled assessments receive an automated call or e-mail message reminding them to complete the symptoms questionnaires. Patients who do not respond to this reminder within 24 hours are contacted by the clinical specialist.

Telemedicine has the capability to bring state-of-the-art healthcare to isolated areas, enabling delivery of medical services to sites that are at a distance from the provider. Technologies used in telemedicine include videoconferencing, the internet, streaming media, satellite, telephone landline, and wireless communications. Telemedicine also has the potential to facilitate better communication between patients and their providers, help patients take better care of themselves, help their caregivers keep better track of their health condition and self-care, alert doctors to medical emergencies, and provide reminders when patients are due for cancer screening tests and other appropriate medical services.

Approximately one-fourth of the US population lives in isolated* or rural areas, and many confront formidable barriers to quality cancer care. The lack of health care personnel and resources in rural areas, and the cost and inconvenience of transportation can create obstacles for patients who don't live in cities. Sometimes patients may end up choosing treatment options based on convenience, rather than the best medical practice, because some services or equipment are not available in their area. In addition, many managed care enrollees and Veterans Administration beneficiaries are required to obtain services from contracted providers that can be distant from the patient's home, sometimes in another state. For Most patients, even those in urban and other areas with many health providers, the norm is relatively infrequent face-to-face contact with their health care providers. Telemedicine offers a convenient means to increase the number of contacts and thus improve patient monitoring and self care, resulting in improved health outcomes. To evaluate the promise of telemedicine and determine the most effective ways to employ technology, the National Cancer Institute is funding an array of research projects in a wide variety of settings. Here are a few examples:

Radiation oncology: Hospitals and cancer centers that provide radiation oncology services to a large number of medically underserved, low-income, ethnic or minority populations are not often linked to the nation's cancer research effort and sometimes struggle to maintain state-of-the-art cancer care. Qualified radiation oncologists practicing in these institutions, who may have a strong interest in conducting clinical science, have difficulty starting and sustaining research programs due to the lack of available resources and expert support.

To encourage increased involvement of these institutions in research, NCI has recently developed Cancer Disparities Research Partnerships (CDRP). The program supports mentoring partnerships between community hospitals that care for a disproportionate number of medically underserved, low-income, ethnic and minority populations and experienced institutions actively involved in NCI-sponsored cancer research. Mentor institutions will offer assistance in initiating radiation oncology research programs and help mentee institutions with protocol development, monitoring of trials, and data analysis. An integral part of this program is a telemedicine system that will enable experts at the mentor sites to perform consultations with patients at the mentee sites, as well as remote viewing of biopsy specimens, magnetic resonance imaging (MRIs), digital mammography, and other scans, with the ability to examine and discuss a case simultaneously.

Symptom management: A collaborative pilot project between NCI and the Department of Veterans Affairs (VA) enables cancer patients who are undergoing chemotherapy, or coping with end-of-life issues, to have their symptoms monitored by an electronic "Health Buddy" device connected to their telephone. The premise of the program is that many health problems can be handled in a timely and effective way and that visits to the hospital or clinic could be averted through regular telephone contact with a care coordinator assigned to the patient.

Each day, patients are asked a number of questions about how they feel, and they respond by selecting answers on an electronic box attached to a telephone line. The information is fed into a central terminal monitored by health professionals. If a cancer patient reports pain, nausea, shortness of breath, depression, or any other distressing symptoms, a nurse calls back and consults with the patient to determine whether he or she needs to be seen in person, or whether a change in prescription, dosage, or other intervention could help. Investigators believe that tracking and responding to the needs of cancer patients is an important issue, because studies have shown that symptom management during cancer treatment, and especially at the end of life, is often poor.

The University of Utah and Boston University (Boston Medical Center) is testing (data 2004) the efficacy of a computer-based telecommunication system for cancer patients who are receiving chemotherapy. Telephone-Linked Care for Chemotherapy (TLC-Chemo- Alert) monitors and records the at-home symptom experiences of patients, focusing on common side-effects of chemotherapy. The goal of the program, led by Kathleen H. Mooney, is to detect side-effects symptoms early, and alert responsible providers, so that there is better control of symptoms and better quality of life for the cancer patient. The program aims to accomplish this by enhancing communication between patients and their healthcare providers, and assisting providers in taking a more active role in symptom management. Patients are asked to call every day, and an automated voice asks questions about their symptom experience during the previous 24 hours for 11 different symptoms such as their level of pain, nausea, fever, or fatigue, and prompts them to rank the severity of those symptoms by keying numbers into a telephone keypad. The patient's oncology provider team (medical oncologist and oncology nurse) is alerted by fax or e-mail, if the patient is experiencing symptoms that have exceeded a preset threshold for severity. Additionally, each group of patients is studied over two treatment cycles, and the information gathered from the patient during the first cycle can frequently be used to improve a patient's symptoms during the second cycle of chemotherapy.

On-line help for parents of children with cancer: Pediatric Cancer CareLink, an Internetbased system is designed to help parents of children with leukemia. It gives caregivers needed information through a direct link to their oncology team and personalized on-line educational materials. Because treatment of childhood leukemia often entails a complex regimen of medications and chemotherapy, parents often struggle with keeping track of medication schedules, and may be reluctant to call doctors in the evenings and on weekends when they have questions about side effects and safety issues. This program, led by Charles Safran of Clinician Support Technology, Inc., allows parents to create an electronic medication schedule and alerts them to the warning signs of dangerous symptoms and side effects.

Telemedicine for cancer screening: Telemedicine is also being utilized to promote cancer screening. In a project led by Robert H. Friedman, M.D., Boston Medical Center is currently testing the effectiveness of a telephone voice response system to increase the use of mammography among women of ages 50 to 74 years by identifying barriers to getting regular mammograms and encouraging women to make mammography a consistent habit. After an initial reminder letter, study participants receive a phone call that uses a recorded voice to ask questions about the concerns and problems they might have, that may influence whether they get their mammogram. By using the touch tone keypad on their telephones, women can respond to the questions and may either be asked follow-up questions or may be offered encouragement about the value of getting an annual mammogram.

Other resources for information on telemedicine and health disparities: CRISP is a searchable database of federally funded biomedical research projects conducted in universities, hospitals, and other research institutes. Use the search terms "telemedicine", or "telehealth". To find just what NCI is funding, narrow the search by selecting NCI under the "Institutes and Centers" category.

HEALTHCARE SYSTEM IN INDIA - ISSUES AND CONCERNS

India is a vast country consisting of twenty nine states and six union territories having different cultures and languages. It is gifted with an ancient historic background, and geographically nature has provided all varieties, like mountain regions, deserts, green plains and far flung areas in the north-east and off-shore islands of Andaman and Lakshadweep. For a country, with a little over one billion population which is predominantly rural and distributed at distant geographical locations, apart from high density urban areas, to provide basic minimum health care has been one of the priorities for the health administration all along.

Healthcare is a state subject which follows a three tier system-primary health centre catering to a group of villages, secondary level health centre located at the district level, and medical college hospitals constitute the tertiary level located in big cities. Besides, there are few advanced medical institutes of national importance having clinical, teaching and research facilities in many super-specialties. In addition to the government run health system, the same hierarchical healthcare services, also exists in private sector.

There is no national health insurance system, though the government, public sector and corporate organizations underwrite healthcare expenses of its employees and family. In recent years, some insurance companies are venturing into the health sector. In spite of well networked health care system, access to healthcare in rural areas is far from satisfactory. In the current scenario, 75 percent of qualified consulting doctors practice in urban areas, 23 percent in semi-urban (towns) and only 2 percent in rural areas, whereas the vast majority of population live in rural areas. Hospital beds/1000 people are 0.10 in rural as compared to 2.2 in urban areas. Further, a vast proportion of the north and north-eastern regions of the country lie in hilly terrain and some territory in remote islands making healthcare reach impossible in such far flung areas.

TELE-HEALTHCARE CONCEPT

Tele-healthcare is no longer new to the country. Both government and private agencies are venturing into it. A few Indian companies are capable of providing hardware and software solutions for tele-health care. Products of reputed overseas tele-health industry are available. Efforts are directed towards setting up standards and IT enabled healthcare infrastructure in the country. A brief summary is as follows:

The Indian Space Research Organisation (ISRO) as a part of application of space technology for health care and education, under GRAMSAT (rural satellite) programme, has initiated a number of telemedicine pilot projects which are very specific to the needs of development of society. These projects consist of linkages through the Indian National Satellite (INSAT), remote/rural areas like Jammu, Kashmir & Ladakh in north near Himalayas, offshore islands of Andaman and Lakshadweep, North Eastern States and some of the remote and tribal districts in the main land states across the country.

While ISRO has an impressive record of achievements in space technology covering satellites, launch vehicle services and applications, it is one of ISRO's continuous endeavors in bringing application of space technology for the benefit of the grass roots population. In this regard, the telemedicine pilot projects initiated by ISRO, are very specific to the needs of development. While health care is not ISRO's primary subject, application of space technology for health care and education under the GRAMSAT program is the focus. ISRO has plans to build sophisticated satellites for meeting requirements of education and health in the coming years.

Since health care is the state subject, the thrust of ISRO is to introduce Sat Com based telemedicine technology in the remotest part of the country through pilot projects, so that the health care system which is predominantly run in government hospitals under state governments administration or a few trust/NGO run hospitals will have sufficient training and experience to run the facility so that states can subsequently introduce telemedicine in an operational mode.

This journey started with the Satellite Instructional Television Experiment (SITE) using NASA's Application Technology Satellite (ATS-F) and subsequently the Franco German Satellite Symphony during 1976-1978, wherein more than 2000 villages were linked for providing education to the village community, in the areas of rural development, health, hygiene and adult education. While this was hailed as one of the biggest sociological experiments in the world, the experience gained from this experiment lead to full scale development of a "Training & Developmental Communication Channel (TDCC)" using the power of SatCom. Several experiments and demonstrations were successfully conducted using the system. The TDCC Network consists of the teaching end, the satellite and the classroom.

The system uses the Extended C-Band transponder of INSAT earmarked for the training and developmental communication channel. While educational content was beamed from the ISRO's studio at the Space Applications Centre, Ahmedabad, the receiver terminals had various facilities like receive only, interactive talkback and data reception. The success of TDCC experiments culminated in yet another application project by ISRO the "Jhabua Development Communication Project (JDCP)" which is a forerunner for the telemedicine programme of ISRO.

ISRO's Telemedicine Initiative has been Broadly Divided into the Following Areas:

(a) Providing telemedicine technology and connectivity between remote/rural hospital and super specialty hospitals for tele-consultation, treatment and training of doctors and paramedics.

(b) Providing the technology and connectivity for Continuing Medical Education (CME) between medical colleges and post graduate medical institutions/hospitals.

(c) Providing technology and connectivity for mobile telemedicine units for rural health camps especially in the areas of ophthalmology and community health.

With larger requirements of different states proposing to introduce the telemedicine facility in their district hospitals, the telemedicine system configured for ISRO's telemedicine project initially started with "point to point" system between the patient and a general hospital located in a district. Town and expert doctors' end which is a specialty hospital situated in a city.

Subsequently, the need for server/browser based telemedicine system evolved for multipoint connectivity and the same is adopted for multipoint connectivity between remote and rural hospitals and super specialty hospitals located in different towns/cities.

The standards adopted for transfer of medical images conferred to the DICOM; and for the patients records information, part of Health Level-7 (HL-7). Telemedicine centers, both at the district/rural hospitals, and at specialist hospitals were set up, under standard room conditions and lighting suited to videoconferencing standard-H.325.

Further, the mode of telemedicine consultations were based on 'store & forward' of patient's medical data and images, followed by videoconferencing. The bandwidth used during video conferencing is 384 Kbps whereas during data transfer, the bandwidth used is less than 128 Kbps.

Minimal medical diagnostic instruments provided in the remote areas, are the 12 lead ECG, X- Ray digitiser/scanner and a pathology microscope with digital camera. However, with the experience of utilization of the facility, it was observed that the pathology microscope and camera is not essential for many of the remote district hospitals, and they are not being provided subsequently. The connectivity was provided through flexi-DAMA based VSAT system with 3.8M antenna with 2W transmitter for mainland states and 5W transmitter for off-shore islands and the North Eastern region. The satellite connectivity is in Extended C-band mesh configuration controlled by the ISRO Hub Station providing network monitoring and control serviced through the bandwidth from INSAT satellite tele-education:

ISSUES RELATED TO INTRODUCTION OF TELE MEDICINE

Introduction of telemedicine requires careful evaluation of resource requirements like:

* Connectivity/Bandwidth (B/W) provision and reliability

* Telemedicine cost consideration /affordability

* Adherence to open platforms and open architecture standards

* Sustainability

* Sourcing specialist availability

* Trained manpower

A possible solution for setting up a national telemedicine network in a developing country like India, may call for a phased roadmap for implementation e.g. district hospital to referral/specialty hospital in first phase crucial role is envisaged for organizations like ISRO for provision of band width. Private and public health provider partnership will be another crucial factor.

TELEMEDICINE INITIATIVES

Realising the benefits and having the capability in terms of technical and medical expertise in India, the Department of Information Technology (DIT), Indian Space Research Organization (ISRO) of Department of Space, and other public and private organizations have started telemedicine projects in different parts of the country. As a facilitator, DIT has taken initiatives for development of technology, initiation of pilot schemes and standardization of telemedicine in the country. Pilot schemes were carefully chosen to take into account diverse issues related to currently available telecommunication infrastructure, specialist availability, geographical considerations, etc. Some of these initiatives are as follows:

* DIT has supported development of telemedicine software systems - the prominent ones by C-DAC. Under this ongoing project, technology developed has been used for connecting three premier medical institutions - viz. SGPGI Lucknow, AIIMS New Delhi and PGIMER Chandigarh- using ISDN connectivity. The technology developed is now being deployed for setting up other telemedicine systems in the country.

* Tele-medicine for diagnosis and monitoring of tropical diseases in West Bengal using low speed WAN, developed by Webel (Kolkata), IIT, Kharagpur and School of Tropical Medicine, Kolkata has been implemented. The system has been installed in the School of Tropical Medicine, Kolkata and two district hospitals. About a thousand consultations have already taken place over this network. Another project on setting up of telemedicine facilities at two referral hospitals and four district hospitals using West Bengal State Wide Area Network of 2 Mbps is also under implementation.

* An oncology network for providing telemedicine services in cancer detection, treatment, pain relief, patient follow-up and continuity of the care in peripheral hospitals (nodal centers) of the Regional Cancer Centre (RCC) has been established. Telemedicine network utilizes internet connectivity in addition to leased lines. The project was implemented by C-DAC, Trivandrum and RCC. More than 4000 patient consultations have been done till date using the network. A cost benefit analysis has shown that economic benefits to the patients have been far more than the investments made in this project.

* To provide specialty health services to remote areas of the north-eastern states of India an initiative of setting up district-level telemedicine centers is underway. A telemedicine solution has been provided at Naga Hospital, Kohima with support from Marubeni India Ltd., Govt. of Nagaland and Apollo Hospital, Delhi. Two more hospitals in the remote states of Mizoram and Sikkim are being provided telemedicine facilities.

* In addition ISRO, Department of Space, Govt. of India has also given a major thrust to telemedicine by providing satellite connectivity. Under this facility 34 remote/ rural hospitals are connected to around 12 super specialty hospitals in various parts of the country by November, 2003. More than 12,000 teleconsultations have been carried out on the ISRO network.

STANDARDIZATION ACTIVITY IN TELEMEDICINE

To streamline establishment of telemedicine centers and standardize services available from different telemedicine centers the need is to define a set of standards and guidelines for practice of telemedicine. The document, "Recommended Guidelines & Standards for Practice of Telemedicine in India", has been prepared by the Department of IT through deliberations of a Technical Working Group, and is aimed at enhancing interoperability among the various telemedicine systems being set-up in the country. In addition to suggesting standards for various equipment needed for setting up telemedicine centres, it also provides guidelines for conducting telemedicine interactions. The standards will also assist the Department of IT and Department of Health of state governments and healthcare providers in planning and implementation of operational telemedicine networks linking various district hospitals with super specialty hospitals, community health centers (CHC)/ Primary Health Centers (PHC) to the respective district hospitals for providing health care to the needy and under served population irrespective of their geographical locations.

There is an ongoing process of experimentation, evaluation and implementation of telemedicine applications in many urban and rural locations around the country, and the advocates for these technologies are numerous and enthusiastic. However, the potential of these has not been fully exploited and the communications and other capital resources infrastructure that supports them is not universally available. The potential effects of their widespread implementation for the health care delivery system of a country as vast as India is immense. Looking at current activities in telemedicine as a whole, it is reassuring that information technology holds promise for improving access to health care services for rural patients through telemedicine.

TMC Reaching Rural Areas - Telepathology -There are some 2 to 2.5 million cases of cancer in the country and out of this over 70 percent cases are detected late and report for treatment in very advanced stages. The emphasis on early detection would go a long way in dealing with the large numbers as well as to mitigate avoidable suffering and financial burden. With this aim, TMC established its first Rural Outreach Cancer Centre at Barshi, Sholapur Dist. for early diagnosis and treatment in 1983. In 2002, a telepathlogy service was established starting with the rural cancer hospital at Barshi. This service is now utilized by several other hospitals as well. A telemedicine service facility has been set up linking Dr B Borooah Cancer Institute at Guwahati and the Dr Walawalkar Hospital at Dervan, Chiplun. Six hospitals in the Northeast and regional cancer centers will be networked to enable patients to access comprehensive cancer care from all over the country. In 2003, the second Rural Outreach Cancer Centre was set up at Dervan, Chiplun, Ratnagiri District.

CANCER TELEMEDICINE SERVICE

In India, 80 percent of the population lives in rural areas, whereas 80 percent of the medical community lives in cities. 11 percent of the world's population, which resides in the rural areas of India, remains devoid of quality healthcare. This scenario could change with the use of telemedicine that would bridge geographical distances and take healthcare from the people who have it to those who don't. The Tata Memorial Hospital offers comprehensive, multidisciplinary telemedicine service for patients across the country. TMH has a well established telemedicine network across India Through Satellite (V Sat) as well as ISDN network. Telemedicine patient consultation takes place at various regional cancer centers.

Tata Memorial Hospital * Started Tele-pathology service linking with rural cancer hospital at Barshi in 2002 * Tele-oncology service for-Dr B Borooah Cancer Institute, Guwahati-Dr Walawalkar Hospital at Dervan, Chiplun * Networking of six hospitals in the North-East and regional cancer centers to enable patients to access comprehensive cancer care.

Telemedicine applied in medical practice results in several advantages

1. Reduction in the need to transfer patients to a site of medical expertise

2. Decrease in the reallocation of medical specialists to the patient

3. Decrease in the number of patient days in the hospital

4. Better organized and less costly healthcare

5. More effective and efficient use of medical and technological resources

6. Enhanced diagnostic and therapeutic quality of care

7. By increasing the levels of second opinion diagnosis between medical practitioners, more deaths can be prevented.

Telepathology-Relay of operative procedures, Cantelmed also conducts conferences for different centers using a polycom videoconferencing system, telemedicine software from TeleVital, medicial data, radiological images, pathology images can be received from other nodes and online consultations. Other centers not connected by VSAT can use ISDN lines to connect to the Tata Memorial Centre to avail consultations and advice.

* The need to introduce telemedicine was primarily to provide access to low cost medical care across the country. The regional cancer centers are not equipped/ resource constraint/doctors are easily not available in rural areas. So the idea of telemedicine emerged with collaborating partners with the Department of Space for telemedicine. Initially it was decided to extend the facility to the already existing rural outreach program at Baruva centre.

* 50 percent of the cases are basically from West and North Eastern states.

* Problem encountered with telemedicine-people have a mental block towards technology

* Doctors are very hesitant to ask technology related questions (ego issue)

* There is lack of awareness about the whole concept of telemedicine.

The main benefits of telemedicine are

Improved access: Telemedicine can provide and improve access to cancer care in previously unserved or under served areas.

Reduced cost: Telemedicine also would help in reduction of costs of cancer care delivery as the advice for treatment is available at the doorstep and travel, accommodation in a city and other related costs are eliminated. The travel cost of the patients for specialty care in premier centers, the personnel/equipment cost for not having to keep specialty care facility in rural hospitals, and other costs can be either eliminated, or reduced.

Reduced isolation: Telemedicine will provide a peer specialist contact for patient consultations and continuing education. It has also been reported that color, full - motion video is critical to the health professionals for simulating face-to-face communication between colleagues in consultations and between patients and physicians.

Expert clinical advice: Telemedicine also would enable expert clinical expertise, increasing the availability of cutting edge cancer protocols and procedures to all affiliate facilities. It would help to standardize and ensure practice of evidence based medicine across all the Regional Cancer Centers (RCCs). In the long run, telemedicine would facilitate networking with regional cancer centers and also facilitate cancer research collaborations.

Improved quality of care: It will allow consultation to take place between the referring physician, the consulting physician, the patient, and the patient's family through interactive video with critical information of the patient available on-line. Also, physicians, or other personnel at remote locations, can be educated during consultations with specialty physicians and other experts, increasing their ability to treat other similar cases in the future. It will facilitate the process of coordinated clinical research and also provide opportunities for continuing education and development.

Distance Education and Training

In addition to clinical advantage of the patients, the linkage can be very effectively used as a training tool for the courses conducted at the centre. Teaching post graduate and post doctoral programmes, continuing education and development are the obvious supplementary benefits.

Research and Multicentre Studies

Tata Memorial Hospital has commissioned the DAE clinical trial centre with a mandate to coordinate, direct and monitor research for DAE funded research protocols in the RCCs. The telemedicine linkage will aid this effort and facilitate communication and protocol efforts in all such research activities.

In rural areas at the regional cancer centers, we face the problem of people being hesitant to use technology. Even costly equipment installed is not used effectively. Even medical professionals who are not conversant with new technological innovations do not communicate their problems and this leads to under utilization of facilities.

Recently we arranged for a teleconference for the doctors and asked them to express their concerns on use of cantelmed services. We found that even doctors had a mind set and were not forthcoming for discussing their problems on use of new technology.

Telemedicine has Opened Up New Avenues of Collaboration

Cancer is a disease, which needs prolonged treatment and life long follow-up. To avoid unnecessary patient travel, RCC introduced a monthly follow up clinic at its five sub centers. Patients returning home after initial treatment at the RCC can communicate their post treatment problems and results of investigations from nodal centers. The doctors at RCC would also be able to render advice on a real time basis for terminally ill patients who require only palliative care.

Telepathology. Telepathology uses telecommunication technology to transmit data and pathology images to, and from, remote centers for diagnosis, education and consultation. A telepathlogy system consists of a high-resolution video camera mounted on a conventional microscope to capture digital images of pathologic slides and telecommunication setup to transmit images to a remote centre.

RCC conducts regular telepathologic consultations between Kannur and Kochi early cancer detection centers. RCC also seeks expert opinions on pathology from expert centers of the USA like Mayo Clinic, UICC, Armed Forces Institute of Pathology and Tata Memorial Centre, Mumbai.

Teleradiology. Besides helping patients for follow-up visits, the online facility will boost the confidence of cancer patients by providing counseling. Apart from RCC patients, the public as well as doctors of other institutions can also avail themselves of ONCONET services.

On Going Activities of Cantelmed

Cantelmed education programs are conducted regularly along with panel discussions and training programs for nurses and discourses by doctors on a regular basis. Extend linkages to all other regional cancer centers and palliative tele care programs, ISRO village resource centers for telehealth, cyber consultation extension of hospital information system and CME sessions from the National Board of Education via EDUSAT are in place to provide networking opportunities to facilitate the change process, and a smooth transfer of technology enabled medical care a common mode of countrywide telemedicine initiative to cater to the large population in a country like India.

CONCLUSION

There is a lot of potential to tap technology based Medical/ health care in India. Tata memorial is one such example of the extent of dedicated efforts in this field of specialized care. While we look at the task of total health care in India, I find we have a long way to go and there is a need for further penetration in rural areas and there is a felt need for looking at avenues for collaboration and forging ahead with public and private sector participation

DISCUSSION QUESTIONS

1. Analyze the extent and impact of telemedicine in India and subject the scrutiny to public and private medical facilities

2. "With the advent of improved and modern communication methods medical practices and cases are more easily shared. Cases studied/discussed, recorded and in many cases put up for general public viewing through the electronic media." - Comment on the statement

3. As is the case with all knowledge, information related to medicine is widely and easily available on the net. The extent of information is largely technical and would take at least a minimum level of technical expertise to be of sufficient help to a common man. Discuss how can hospitals equip themselves with new technology.

Subject: Telemedicine; Cancer therapies; Hospitals; Case studies

Location: India

Company / organization: Name: Tata Memorial Centre; NAICS: 622110

Classification: 9110: Company specific; 8320: Health care industry; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 3-19

Number of pages: 17

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745600195

Document URL: http://search.proquest.com/docview/745600195?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 21 of 100

SECTION 1. FOCUS ON KNOWLEDGE MANAGEMENT, TECHNOLOGY TRANSFER AND INFORMATION TECHNOLOGY - Chapter 2. Digital Content Delivery and Monetization Issues at vReach

Author: Chauhan, Roma; Gupta, Rajeev

ProQuest document link

Abstract:

vReach, a digital media company is a pioneer in design and development of interactive digital content for various conferences and summits held across India. Their core product offering used to be fusion of video, PowerPoint, audio, text, animation and graphics. Thus, they provided a more interactive experience of the event to users. The company had complete capability, from media acquisition to distribution, with support for all media formats, under its own control. The product was further extended to the user through the medium of internet/ intranet- in a form of Webcast. Two years ago, the company decided to provide digital content on the web to its customers to get a competitive advantage. The company invested heavily in terms of money and manpower on the project. But, this was not as successful as anticipated. The case explores the hurdles encountered in deployment of the product in a form of Solution or Service (SaaS) on the web. This case focuses on the technical, schedule and financial feasibility issues which occurred during the implementation phase. [PUBLICATION ABSTRACT]

Full text:

ABOUT THE COMPANY

vReach is an organization dedicated towards helping clients to use innovative and creative media solutions, and to gain a competitive edge in the overseas markets. The company has a record of selling digital content through offline media, which enables enterprises and educational institutions to communicate more effectively with customers, employees, partners and learners. By using this methodology, they deliver more convincing communications, which are better understood, retained, and applied. On the whole, this leads to saving of valuable travel time and costs and increases organizational efficiency. The company gained strong market standing by providing the product to leading giants in industry.

Gokul Tandan, Managing Director, and an MBA with large experience of IT/Telecom project management, heads the company. He has handled several projects in India, partnering with companies like HP, Ericsson, Sanyo and Nitsuko. He has been an active angel investor in new technology and e-commerce projects. The other think tank driving the company includes Rajendra Kulkarni, Co-Founder and Director, Gurumukh Singh and Navneet Behal, a New York Institute of Technology graduate with 12 years of extensive experience in computer graphics, film, Animation and software application design industry.The team discussed the necessity to expand the reach of services offered by VirtualSoft System, which would be launched in the market by the name of vReach.

VirtualSoft had energized and dominated the market. The company revolutionized the way business was carried by broadband networks. VirtualSoft had promoted a sister concern under the name of vReach that utilized existing corporate computing infrastructure to make real-time business meetings and events more cost effective and convenient by reducing travel and extending its reach to globally dispersed customers, partners, and co-workers over low-bandwidth network connections through a simple browser interface. The company took off in 1998, piloted by experts wilt rich experience media content development, delivery and management. Their objective was to create customized solutions that cut costs, build revenue, raise productivity and mobilise intellectual capital across the enterprise.

VirtualSoft's vReach division also offers rich media content creation and migration services using proprietary technology and business methods. It creates near video ondemand content synchronized with Power Point slides and other interactive mechanisms for leading conference organizers like Cll, FICCI, The Times of India group, The Federation of Asian Advertising Associations, Business Today; and for leading enterprises such as SAP, IBM, the World Bank and the Tata Group.

It has created over 1000 hours of such content for over 100 different conferences and training events. This content is available offline form as well as knowledge on-demand servers accessible over the intranet and/or internet. VirtualSoft and its v Reach division offer outstanding digital broadband solutions. Broadband network solutions offer the customer a convergence of voice, data and video that can be used on-demand for business needs.

The company suffered a drastic fall in performance in the year ending 31st March, 2008 as against the achievements of 2006 and 2007. The results from the balance sheet for the period 2006-2008 are shown in Table1.

A NEW OPPORTUNITY: WEBCASTING

The company faced tough times as other competitors had expanded during the same period. The vReach range of limited services did not help the company in realizing enough profit margins. There was strong market and technology competition faced by the company. The situation forced the team to get together to find ways to resolve the issues. Gokul Tandan and his colleagues had to take decisions to diversify the range of solutions to remain in the competitive market. The team decided to explore the emerging field of video streaming of content in the form of "webcast". Gokul Tandan appointed a systems analyst to analyse some key issues about the viability of the product, estimated costs and schedule for the project and to identify major risks to the project, which they could surmount?

The analyst along with his team worked to collect data on the feasibility of the webcasting project as Software as a Service (SaaS), and pointed out that the webcasting business had a high potential not only for the Indian market, but also for international markets. The analyst prepared report for the management.

THE FINDINGS OF THE ANALYST

Streaming media can provide a presence that extends the reach of middle management and the effectiveness of business analysis. Travelling to organize and attend meetings reduces productivity, is costly, and can cause significant delays and missed deadlines. Streaming media permits people to work remotely much more effectively. Streaming media markets are growing all over the world in response to increased availability of broadband and internet networks. With product cycles shrinking from years to months, streaming media has become a significant marketing tool. Use of streaming media by marketing departments represents incredible growing opportunities for vendors. The use of streaming media by IBM illustrates this trend, as many product announcements feature shots on You Tube with videos that illustrate as to what is coming. As these companies succeed, there is an opportunity to increase bilateral sharing of business events and sharing the use of video technology.

Online market acceptability and penetration of the video streaming market was carried out in order to begin the service initially in India and then reaching overseas audiences. Video streams viewed at broadband rates by high-speed users (at home and work) have, within a span of three years, experienced rapid growth and now account for close to 80 percent of total views. The report examines in detail audience and user metrics of broadband video online from 2000 through 2004, with comparisons to narrowband streaming video consumption from 1998 through 2004.

THE MAIN POINTS

* Historical and current market data shows that the total broadband streams served per unique user per month rose by 43 percent (for sites with 90 percent broadband usage) to 15.4 during the first half of 2004, with an average length of viewing of over two minutes and average bit rate of 225 Kbps

* Of the total five billion video streams served during the first half of 2004, 79.1 percent were at broadband (100 kbps and above) rates, with an average viewing time of 30 minutes per unique user per month per site

The analyst found that the growth in video streams was accelerated by:

* Increased broadband connections (both cable modem and DSL) at the residential level

* More promotional initiatives by sites, networks and channels to increase awareness of broadband content

* Ongoing innovation at the application level, particularly media players that queue up files for auto-play (Yahoo Music, MSN Video, CBS News, Living.com, HGTVPro.com, MSNBC News, ESPN.com and others); creating playlists that behave more like a channel

The analyst also highlighted that

* Video streams were forecast to grow by 32 percent in 2006 to over 23 billion served and by another 26 percent to over 29 billion served in 2007

* Broadband streams (100 Kbps and above) made up 84.9 percent of total streams served in 2005

* Narrowband video streams made up 15.1 percent of total streams served, compared to 20.7 percent in 2004

* Music videos once again commanded the largest share of streaming video usage online in 2005, capturing 45.6 percent of total views

* Aggregate tuning hours (ATH) for the top ten Internet music radio sites and networks rose by 43.8 percent in 2005 per month, to 257.3 million hours

US Market Overview

As the US was the intended market for the product, data was collected for trends in the US. These ore shown in Table 2.

This report provides a detailed data and audience analysis for the year in streaming media 2005, with usage metrics and share metrics across key content categories such as music, news, sports, entertainment, Internet TV, movies and Internet music radio. Video streams viewed rose by 50.2 percent in 2005 to 17.95 billion across all sites and networks, including free (ad-supported) and subscription video streams.

vReach Gets New Direction

After understanding the global market needs and requirements, the vReach management decided for diversification by going in for a webcasting project. Tandan formed a committee headed by the senior system analyst Amit to seek information on some key issues such as whether the product concept was viable? Would it be possible to develop a product that matched the project's vision statement? What was the current estimated cost and schedule for the project? Had the major risks to the project been identified, and could these be surmounted?

Amit collected data on the feasibility of the work and came to the conclusion that the webcasting business had a high potential not only in India, but also in international markets.

After getting convinced on the feasibility of the webcastisng project, the team started the project development cycle. A team was formed of experienced software engineers, designers and team leader. As the team was working for first time on a new technology, Silverlight, it had to recruit experts for the job. One of the major challenges was that it was difficult to adhere to the schedules due to the uncertainties related to requirements, schedules, personnel, tools, architectures, budgets, etc. The team met various customer representatives to talk about their specific requirements and expectations from the project.

After analysis of major customer requirements, the team intended to build an enterprise-class application that exploited the benefits of streaming media by:

* Filling the gaps left by traditional communications methods with more stimulating videos.

* Putting everybody on the same page globally: the same information delivered to anybody, everywhere.

* Keeping employees updated on job skills by providing training when needed.

* Enhancing competitiveness by improving revenues.

* Shortening time to market for new products and services.

* Leveraging existing infrastructure with a broader range of applications.

The company developed a MicroSoft Silverlight enabled platform which captured knowledge, when and where it happened - in meetings, seminars, training, classroom or exhibition and delivered the information over the web to people who needed it. People could watch the webcast on-demand or live. The project was developed using cutting edge technology from Microsoft Silverlight that was initially developed on version 1.1; which later migrated to Silverlight 2.0. Hurdles were encountered from the very initial step of the project development lifecycle to the final launch.

There were constant delays in launching various modules of the project due to various causes such as problems in finding suitable experts on Silverlight technology, lay off of team members, bandwidth problems. The delay actually led to competitor's penetration in the market to a great extent. There was a huge gap between idea generation and the final project development lifecycle, providing an advantage competitors. Analysts were very optimistic about bandwidth but it which was not true.

BANDWIDTH: CURRENT SITUATION

Bandwidth acts as an essential component for running a smooth webcast. The hefty video played ended up causing delays thus hampering user experience. The bandwidth requirements for a large number of audiences in webcasting is a big hurdle. With the high demand of bandwidth for streaming video over the Internet does not provide the desired audio or video quality. The actual figures of bandwidth used are not as important as the financial cost for getting the bandwidth. The factors that affect bandwidth can be:

* The length of the live webcast in minutes, for example 60mins (1 hour) webcast

* The number of people who choose to log in and watch the webcast

* The length of time each of the visitors remain logged in minutes

The bandwidth available between two points on the Internet is generally unknown and time-varying. If the sender transmits faster than the available bandwidth then congestion occurs, packets are lost, and there is a severe drop in video quality. If the sender transmits slower than the available bandwidth, then the receiver produces sub-optimal video quality. Additional considerations that make the bandwidth problem very challenging include accurately estimating the available bandwidth, matching the pre-encoded video to the estimated channel bandwidth, transmitting at a rate that is fair to other concurrent flows on the Internet, and solving this problem in a multicast situation where a single sender streams data to multiple receivers where each may have a different available bandwidth.

Overcoming these points in the real world needs spending money. If these are not met, then it can lead users to end up with a frustrating experience.

Most customers have Internet connections that are narrow. This implies that prevailing applications are restricted to emailing and web-browsing with limited multimedia content. The pricing structure of broadband in India is arguably one of the highest in the world, making it an elite or luxury item, denying the common man the right to information. Surveys and blog entries have suggested that small enterprises and residential users want better (more) bandwidth at affordable prices.

The analysis shows that the cost of bandwidth in India is high as compared with other countries. Both retail and corporate customers are deterred by the high price of bandwidth in the country, primarily due to the near monopolistic policies over the past decade exhibited at landing points of submarine links.

COSTING: A CHALLENGE TO MANAGEMENT

The cost the live webcast of an event requires more cameras, editors as well as encoders to encode videos during run time in minimum time. Ample bandwidth requires expenditure, which is expensive. The other costs are manpower availability onsite to provide live indexing, creating searchable transcript files so users can jump onto the point of their interest. Due to delays in releasing the final webcasting product, the market value of webcasting came down, increasing competition and reducing costs.

The price charged by various leading web streaming service providers in India is as follows:

THINK TANKS CALL FOR RE-BRAINSTORMING

Everyone seems to have been puzzled by the situation. Team members held responsible for the delay in project development and launch lifecycle and few others think that this is due to poor bandwidth in India. Plans for launching the service initially in India and finally in the US seems were be going wrong."We over ran with the project schedule and cost both!!!" What to do next? Where to go? asks a furious Tandan???

ISSUES FOR DISCUSSION

The company faced a number of challenges before the product beta version was actually launched in the market. Webcasting, especially live for the masses, is expensive and requires vast amounts of bandwidth. But, the truth is that not every virtual attendee is willing to interrupt his day to attend a web event.

1. What lessons can competitor's from the methodology that was adopted?

2. Should the team go about launching the product in the US market due to better bandwidth availability and more audiences?

3. Does the webcast still need to gain momentum in countries like India?

4. What can be other issues that will add to the company struggles to attain a standing in the webcast market?

Subject: Case studies; Software services; Webcasting; Web content delivery; Broadband

Location: India

Company / organization: Name: vReach; NAICS: 511210

Classification: 5240: Software & systems; 8331: Internet services industry; 9110: Company specific; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 20-27

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745600201

Document URL: http://search.proquest.com/docview/745600201?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 22 of 100

SECTION 1. FOCUS ON KNOWLEDGE MANAGEMENT, TECHNOLOGY TRANSFER AND INFORMATION TECHNOLOGY - Chapter 3. Launching Enterprise Data Backup and Recovery Solutions: The Case of Ozonetel

Author: Kumar, Sujit; Varma, Siddharth

ProQuest document link

Abstract:

Ozonetel Systems Pvt Ltd is a company setup in 2008 by entrepreneur CSN Murthy, as a subsidiary of Rocsys Technology. Ozonetel systems has focused on the Data, Network and Voice security offerings for enterprises. The advent of Internet has brought in several challenges in terms of security of data and network systems. While big companies can develop their own security products, or can buy them, small and medium companies have neither the financial muscle nor technological strength for doing this. Ozonetel wanted to target SMEs across various sectors. Ozonetel developed a solution with features like Automatic Storage from host computers, Incremental Backup, Block level De-duplication etc. However, the USP of the product was "Customised data backup and recovery solution at half the price of MNCs". The company faced problems in reaching different market sectors despite being based in Hyderabad, a software hub. Determined to exploit its first mover advantage, Ozonetel decided to study the buying behaviour for IT usage across sectors and merge the results with an earlier study focusing on lack of market penetration of MNCs. With the help of a few marketing interns from the Indian Institutes of Management (IIMs) Ozonetel carried out this study in and around Hyderabad. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION TO THE COMPANY

Ozonetel Systems Pvt Ltd was set up in 2008, as a subsidiary of Rocsys Technology by entrepreneur CSN Murthy. Ozonetel systems has focussed on Data, Network and Voice security systems for enterprises. Rocsys was founded in 1997 as an off-shore centre for Intoto Inc. based out of California. Intoto Inc. developed security technologies that were licensed to OEMs like Nortel, Motorola, Redback and others. Intoto was acquired by FreeScale Semiconductor in 2008. In 2004, Rocsys spun out as an independent venture with core focus on BFSI Risk Management and SME solutions in the area of Network Security, VoIP. Rocsys received its first funding in 2008 from the Shriram Group which is $1.6 billion group in India with multiple interests. Ozonetel took shape in Jan 2007 as a subsidiary of Rocsys segregating Network Security, Telecom and VoIP practices.

Ozonetel's vision is to "Simplify enterprises and consumer's communication, transaction and decision making." The value proposition of Ozonetel is a core team with 8-15 years industry experience in executing mid to large size projects for various industry majors across the Globe. (AT&T, Avaya, Bell South, Pfizer, USAA Bank, GE, Chase Mellon, Merrill Lynch, Standard Chartered Bank, ICICI, Reliance Communication and more). They undertake no hassle support and management for projects. All products are supported remotely through remote management interface, accessible through modem over a dial in PSTN line.

Ozonetel has several competitors who offer products with different features. Among them, CommVault, EMC, Hewlett-Packard and IBM offer integrated backup and archiving. BakBone Software and CA offer backup and replication together. Continuous capture is available with Asigra, CommVault and Symantec. Similarly, several vendors including Asigra, CommVault, EMC, EVault (a Seagate company), IBM and Symantec-offer data de- duplication as a feature of backup. (Exhibit 5)

PRODUCTS AND SERVICES OF OZONETEL

Ozonetel products are built to support flexible deployment models of in-network, managed and hosted, thereby catering to different clusters of customers with different business, technology and business requirements. (Exhibit 1).

Ozonetel, within a very short span of one year, has attracted customers from various sectors including banking, insurance, telecommunications, software etc. Some of the customers are GE-Money Thailand, Max New York Life, BlueDart, BSNL, North Delhi Power Limited, Reliance Communications, Genesys, Telisma.

However, for security and data networks, Ozonetel wanted to target the growing small and medium enterprises (SMEs) across different verticals. The advent of internet has brought not only huge business possibilities for companies, but has also posted several challenges in terms of security of data and network systems. These firms have a large number of offices across cities and countries, and have personnel working in different locations. Coordinating them efficiently and securely needs good network solutions with various safety features. While big firms can develop their own security products, or can purchase customised solutions from suppliers like IBM, Commvault, EMC etc., small and medium companies neither have technological strength, nor the budget to develop, or deploy such security solutions.

UDM (Unified Data Management)

The automatic update of data, centralized backup and recovery solutions for a host of computers on a network spread across different locations has been an emerging need across various sectors. The Unified Data Management (UDM), developed by Ozonetel, focussed on these needs with several other offerings like block level deduplication, content management, data archiving as well as compliance solution for stored data (Exhibit 2). Most of the stored data contain information about the last update also.

UDM PRICING

The UDM developed by Ozonetel come in various variants depending on memory backup size. The variants are named as SS1, MS1, MS2, ES1, ES2. The backup size ranges from 1TB to 24 TB. The cost per unit given in Exhibit 3 includes software development costs. The software development cost per unit will be subsequently reduced as the number of units sold, will increase. So, the profit per unit will increase after the first 30 units are sold.

The hardware cost depends mainly on the memory size. The server and external body cost remains almost the same. Software cost depends on the offerings selected. The cost here includes maximum software offerings. The mark-up in hardware is 30 percent. When the units are sold through resellers, the reseller margin is around 15 percent. (Exhibit 4). Annual maintenance cost is around 30 percent of cost to the customer. The annual maintenance cost includes software renewal charge as well as charge for warranty provided on the product during that year. Although the price is said to be fixed, but in almost all cases it is adjusted by around 2-5 percent after negotiations with customer. The cost to end customer increases by 10 percent through reseller marketing, as the cost of training the distributor and transferring cost of unit comes into the picture, but the price is left untouched for end customers. Distributors are however free to charge customers as per their choice and competition in the area.

UDM AND OTHER MARKET OFFERINGS

The importance of taking a central backup apart from local backup of the database has been slowly understood by various sectors. While pharma and clinical trials industries need such solutions for managing a huge amount of data along with US compliance readiness, other sectors like education, travel, media etc have slightly different needs. UDM has incorporated various offerings and they can be bought bundled, or separately.

As per, Steven Rose, CommVault, "I think customers in India are more concerned about backup and then move forward to archival and within this there are several flavours like e-mail archival, file system archival, etc. Incidentally, Microsoft endorses Commvault for its archival technology. In enterprises, there are different operating systems and the data storage management setup is also varied. Therefore, these companies need different strategies when it comes to planning their data archival."

There have been various alternative solutions to UDM for remote backup of data like CD/DVD, tape drives etc. But, they not only consume a lot of space, but also provide very slow searcheability of the stored data from them. They are not centrally located and cannot be altered in real time. They are usually updated in a week or so. Also, the stored data has no knowledge on itself as to who changed the data. So, the details of the author have to be written separately. It takes much larger space and the same data may be stored more than once. The chances of loss or damage to data is also much more in tape drives or CD/ DVDs. Local backup in computers is very risky as the saved data will be lost if the system crashes. Virtual tape drive is another solution, Falconstar software is the leading product in this field.

Other offerings of UDM include data archiving, data deduplication and easy recovery. Data archiving means relocating inactive data from your production database to a secure online data archive. There are compliances for data archiving, which UDM is ready with.

Data deduplication means that the same data should not be stored on different computers. Different computers can share the same database. Each time any update is done, only the difference of data, i.e., only the changes are stored. Also, the name and computers details are stored in a separate file for quick reference.

The data recovery option has a snapshot option through which one can see the data existing at any moment in the past.

BUYER BEHAVIOUR ACROSS VARIOUS SECTORS

Buyer behaviour across different sectors depends on various parameters like urgency of requirement, power structure of the concerned division and company as a whole, decision making duration, capital expenditure plans etc. In many cases, IT has become a supporting but important activity, hence when customers are contacted for the first time, the response is usually very dull, but as soon as they understand the features, they realise the product matches with their strategic requirements.

The CEO, Mr. CSN Murthy was confident with the product, after several trials and tests done both in-house and with existing customers. However, he knew that his team had virtually no experience in marketing of data backup and recovery product in India. Various channels available to him were direct marketing, resellers and dealers across various cities. He was even thinking of opening new branches in various cities to cater to the demand. Mr. Murthy recruited a few students of the Indian Institute of Management, Kozhikode to do market research and analysis for the same, across different verticals. He assigned Sujit Kumar, the first named author, to carry out a study on how to reach different segments in the market. The purpose was to identify the pain points, or basic needs of various sectors and the right channel to approach them.

After two months of rigorous market study, Sujit submitted his report on the study assigned to him. The report had information on several sectors: travel, education, media, hospitals, pharma, and manufacturing.

PHARMA AND CLINICAL TRIAL SECTOR

The pharma and clinical trials industry is one of the rapidly growing sectors in India, with a global market. These firms have a huge database which requires backup. These industries also have to comply with US and European norms The bigger players like Aurobindo, have already implemented solutions from IBM. Ozonetel saw huge opportunity among small sector companies located in and around Hyderabad. These companies had UDM as their basic requirement. The market in this sector was only with small players, or start-ups, or companies in the expansion phase. But the spending in this sector has been quite low. Pharma companies seemed to be quite sceptical about spending money on IT as they were not very IT savvy. Clinical trials companies across locations, other than Hyderabad, had shown interest in the product. There were many such companies in Delhi and Mumbai in the growth phase. However, customers in this field were quite sceptical in using software unless it was proven. They had little faith in retailers. Also, this being their basic requirement, they did not think twice in spending more money for a well branded product like IBM Tivoli.

TRAVEL SECTOR

Travel sector companies are flat in hierarchy. They have 5-6 top level decision makers and 12-13 second level managers. These managers only view the administrative and operational data in totality. Then there are regional managers in various cities. Regional managers oversee operations of services and rarely have any idea of interlinking of data across cities, even though they frequently use it. Regional managers have little say in the method to obtain data. The decision making power is, therefore, in the hands of second level managers only. Purchases are carried out either by the Head of IT, or Head Operations, while the IT department is the user. Decision makers are the group directors.

Although the big players in India are part of global firms, they don't have full-fledged IT software for all their needs, as they are still in the growth phase. IT heads also look for software which satisfies local needs. As the market is going through a lean phase, in Dec 2008, Mr Vishwajit, the IT head of FCM Travels, a top travel agency had said that they have very little IT expenditure planned for that year.2

When the IT head of the best travel service in India was contacted, he said they required software which would cover 300 offices each with 50 computers, and each computer with data in Excel sheets of size 100 MB. Here, the requirement was more for a central backup and size was not so important. The data to be stored here was accounting, as well as previous six months travel details of each customer. He wanted to manage the database while sitting in Delhi.

Another car rental company Carzonrent.com, which has a network throughout India, had similar needs. But these companies were mostly located in Delhi and reaching them from Hyderabad was difficult. Mr CVM Krishna, Chief Marketing Officer, Ozonetel, was thinking that the for each outstation installation, an engineer would be required to stay at least 4-5 days at the location where the installation was to be done. These additional costs would have to be passed on to the consumer which could make the product less cost competitive.

The average demand in this sector is 10 UDM every year. Most of these companies have central IT departments in Delhi, or in other metro cities.

EDUCATION SECTOR

JNTU had mandated for all its affiliated colleges to have a digital library since December 2008. Such a digital library would have to store the database of books and journals on a central location accessible anywhere on the Intranet at the campus. In this scenario, there is a great opportunity for the UDM product in Hyderabad itself, with a base of almost 500 colleges.

This market is yet untapped in India. IBM like solutions are presently bought only by large institutions, but small stand alone colleges with around 100 students, do not want to invest such a large amount, and have shown interest in UDM.

Though the institutions require around 5 GB of space to store various documents including magazines, journals and classroom courses, but most of the colleges didn't want to go beyond a basic functioning centralized library with 1GB size. Hence, they were not really planning to invest in a 5GB product, but wanted to buy a 1GB product for five years requirement.

The education sector mostly has three hierarchy levels of control, Director, Head IT and Head Computer Centre. The decision by the Director mostly depends on the Head, IT. The IT head consults his system administrator or Head, Computer Centre for a list of suppliers from nearby markets. They usually do not approach production companies like IBM, CommVault, and Sun Microsystem for any IT solution, rather they approach nearby resellers. After getting quotations from the resellers, the least quoted supplier and products are chosen. The process is not standardized, and is handled through relationship marketing.

On being contacted, the IT Heads of various colleges didn't show much interest in the UDM product after getting the quotation. Clearly, they wanted a confidante to help them in IT buying, rather than deciding on their own to make purchases from a new supplier.

In the near future, several colleges in different cities are going to have requirements of UDM backed digital library. As the current number of suppliers is quite small and Ozonetel is a winner on the price front, hence taking advantage of being the first mover, is the first step in marketing UDM across educational institutions.

HOSPITAL SECTOR

Very few hospitals in India are IT savvy. Most of them maintain a customer and administrative local data backup, but they do not have any centralized backup and recovery solution. But, with problems of vulnerability of important customer data stored locally, they are slowly adopting a central backup and storage solution. When contacted, we found that in most of the cases, UDM with minor changes would suit their needs. They do not want complete data of customers like X ray and ECG reports to be backed up at a central location, but need only basic data about patients and administrative and financial data to be stored centrally. Such a central database would help them in two ways: first, they would be able to manage the ever growing number of customers in the city they operate in, and second, the new centres in various cities would not need a separate database, but would be able to connect and access central data, thus reducing the effort in bringing all offices at the same level. Competition from other hospitals like Apollo is also another reason for having a central database.

In case of hospitals, the buyer is the Head - IT, users are receptionists at the gate, and back-office operators, decision makers are CFOs and CEOs, influencers are again IT head or system administrator.

Lack of IT knowledge was evident when we contacted the IT departments in hospitals. They had no idea about technical requirements like memory size and recovery frequency. Also, IT rules and regulations for data storage in hospitals have not been fully developed in India. Most of the information about implementation was gathered by them from other suppliers. They did not have any idea how to go ahead with a central database without disrupting the existing local servers. Seeing the ignorance of customers and their implied vulnerable status, Mr Krishna was reluctant in serving this sector through resellers or suppliers. He considered direct marketing with development people in sales presentation teams as the best way to pitch to customers. The switching cost being minimal at the initial stage, customers have to be taken into confidence about the product through regular meetings and free demonstrations. He planned to have a seminar on "IT implementation and benefits for customer satisfaction in hospitals" to be conducted across various hospitals to educate them as well as to improve brand awareness of Ozonetel.

MANUFACTURING SECTOR

For the UDM market, this sector is one of the most attractive ones. Post SAP implementation, customers are flooded with digital data in various formats. Also, manufacturing companies have e-mails to be stored safely at a central location. UDM provides a one stop backup and recovery solution for all the types of files. The number of small scale companies across various verticals like sugar, cement etc., which are slowly adopting SAP, is increasing in all the cities. Ozonetel should act fast, so that they do not lose first mover advantages in any of the cities.

MEDIA SECTOR

The media sector throughout India is in a growth phase and faces a huge requirements of a central storage system. Such a system would help them recover their past data quickly and reproduce it at customer demand within no time.

When we contacted Maa TV, a major TV company, the Head - IT said that they want a 20GB solution but they have only MAC PCs. The Ozonetel development team had already taken care of such platform issues. Hence, technically it was feasible to use UDM here.

The decision making for IT purchases was simpler here. Financial hassles looked less here, as data backup and recovery was an integral part of their business. They wanted a basic working solution with faster recovery. The data de-duplication and data archiving like needs, were not important here.

The volumes seemed to be quite high. Market research had shown that with increase in quality of video data, storage requirements would keep on increasing. Overall, this sector would prove to be an evergreen sector for UDM at 5 percent-10 percent growth over the next 10 yrs. The requirement was across cities, having a number of studios like Mumbai, Bangalore and Chennai.

ISSUES FOR DISCUSSION

Mr Murthy knew that resellers would not face any problem in selling the product. But, seeing the downturn of the economy in June 2009, especially in the IT sector, in the initial phase of product launch, convincing the resellers to buy at least one product and keep it as inventory was a difficult option. Resellers wanted to buy UDM only if an order was placed, or confirmed. Suppliers were less willing to partner with new companies seeing lack of faith generated by the Satyam fiasco. It became important to have resourceful as well as faithful suppliers. Each of the sectors had its own unique characteristics and marketing strategies would have to be customized to suit each segment.

He knew the trade-off between number of resellers and profit per unit sold. If the suppliers in an area were increased, sales would increase, but it might have negative consequences also. Increased competition among resellers would force Ozonetel to reduce prices and profits per unit might reduce further. Setting up a nodal centre in each city to look after the suppliers for future sales and service seemed to be a viable option here, but it would add to costs. Also, opening a new branch seemed extremely costly at that time. Mr Murthy tried to weigh all the options and associated costs, before embarking on a particular plan. He came out of his room and moved towards the chamber of Mr Krishna to discuss the marketing strategy with him.

EXHIBIT 1: OZONETEL PRODUCTS AND SERVICES

UAG

Ozonetel's Unified Access Gateway offers comprehensive network security gateway for the organization with fine granularity. UAG offers Firewall, VPN, Traffic management, Web filtering, Gateway Anti-Virus and Anti spam and more, with high availability feature that ensures maximum network uptime and uninterrupted access.

UCG

Ozonetel's Unified Communication Gateway business edition is designed and optimized for the SMB, and SOHO daily communications. UCG provides businesses the features required by today's demanding business communications needs. In addition to the standard features of all New Generation IPPBXs, UCG includes rich set of enhanced business applications like audio conferencing, follow me, video call and more.

UDM

Ozonetel's Unified Data Manager is a Unified Platform for file sharing, storage consolidation, backup and recovery, virtualization and replication. The Unified approach offers excellent price-to-performance ratio, enhanced manageability, and increased productivity. UDM provides a simple and efficient way for enterprises to handle data protection, recovery and information management. UDM offers a scalable platform to meet your needs far into the future

Application Services of Ozonetel are divided in three components Voice, Database and BI & Data Warehousing.

Voice: Ozonetel offers professional services for Customers and Products

Avaya: Avaya Designer/Avaya Dialog Designer , VXML, CCXML, Avaya IR, Avaya Voice Portal, CTI development for Avaya CT Server/CCE/AIC

Genesys: Genesys voice portal / voicegenie

Nuance: Speech application development for Nuance using SRGS/SSML and tuning. (Nuance OSR, Real Speak etc.)

Telisma: Speech application development, regional language pack development, speech tuning.

Backend Integration: DB2, Oracle, Sybase, SQL Server, Mainframe, MQSeries Tuxedo, SOAP, ERP, CRM and more.

Web application development: IBM Web sphere, Weblogic, Microsoft IIS, Java, Web 2.0 and more.

Database Consultancy services: Ozonetel offers DB consulting in Solaris, HP Linux, AIX and Windows environments for

* Oracle High availability solution (dataguard and replication)

* Oracle RMAN

* Oracle Application 11i

* MySQL Real Applications Cluster

* Managed Data Service

§ Advance Monitoring and Reporting

§ Many powerful and easily customizable reports are available. These reports provide current and historical information in areas such as alerts and events, database growth, tablespace size and distribution, high resource SQL, instance activity, wait events, redo log activity and more.

EXHIBIT 2: UDM (UNIFIED DATA MANAGEMENT)

Product offerings

1. Centralized storage and backup

a. Method: Online continuous or scheduled storage

b. Database to backup: SQL server, mySQL, Oracle, Sybase

c. MailServer to backup: IBM LotusDomino server, MS Exchange etc

d. Applications: ERP, SAP, Tally etc

e. Workstation backup and recovery

f. Automatic discovery and agentless backup of virtual machines

g. Saving option ranges from File level to drive/ block level to entire machine level(including virtual) saving

2. De-duplication

a. Cost reduction through less incremental storage space

b. Less of tapes used in remote data storage

3. Data or Content management

a. Content classification for restricted access (Important in centrally stored data)

b. Intelligent data storage with identification of file eg mp3,gif, txt etc.

c. PLM and email facility with next viewer identification

d. option to save files or not , ie personal files not to be saved centrally.

e. Secure storage Platform

i. Encrypted file system

ii. Secure transfer

iii. Secure Integration

4. Archiving of data

a. by relocating inactive data from your production database to a secure online data archive

b. Archiving compliance ready solution

5. Easy search for data recovery

a. Much faster than earlier physical storage methods

b. Interface with intelligent document search engines.

c. Further development in intelligent recovery has to be made (but that will come in document management rather than unified data management)

6. Data or disaster recovery

a. Storage replication

b. Data replication: (refer 1.b) for Sybase, oracle etc

c. Replicated file in same format as saved by user

7. File Replication

a. Instantaneous Snapshot like replication

b. Simultaneous online access to all users across different Remote locations

c. Audit ready Reporting

8. Compliance solution

a. 21 CFR Part 11, SOX

b. Audit ready reporting

9. Cloud Integration

Subject: Case studies; Small & medium sized enterprises-SME; Security systems; Network security; Information management

Location: India

Company / organization: Name: Ozonetel Systems Pvt Ltd; NAICS: 511210

Classification: 5200: Communications & information management; 5140: Security management; 9179: Asia & the Pacific; 9520: Small business; 9110: Company specific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 28-40

Number of pages: 13

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745599927

Document URL: http://search.proquest.com/docview/745599927?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 23 of 100

SECTION 1. FOCUS ON KNOWLEDGE MANAGEMENT, TECHNOLOGY TRANSFER AND INFORMATION TECHNOLOGY - Chapter 4. Knowledge Management Implementation in the Indian Public Sector: A Case Study at NTPC

Author: Goel, Alok; Rana, Geeta; Rastogi, Renu

ProQuest document link

Abstract:

The purpose of this article is to analyse the extent, strategy and imperatives of knowledge management (km). The investigation was carried out with the aid of a case study of NTPC, a navratan PSU of the Government of India. Research findings indicate that KM could improve organisational and managerial as well as financial aspects of an organisation. KM helped the organization to manage and institutionalize knowledge management processes and to create an organizational culture for managing and motivating knowledge workers. This is a qualitative study which could be further enriched by empirically measuring KM, person-organization fit and its impact on the level of engagement. The article highlights the impact of KM and its approaches for competitive advantage, which can facilitate knowledge generation and knowledge sharing processes by means of a case study. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

One of the hottest areas in industry right now is that of Knowledge Management. Driven by tremendous pressures for service quality, speed to market, and innovation, and by the availability of a new generation of exciting information management tools, companies are employing new technologies to leverage the intellectual assets of knowledge workers. Knowledge management can contribute significantly to the evolution and application of knowledge for implementing strategies and practices that are more environmentally and socially sustainable. The development of sustainable competitive advantage is a vital management function, and an important requirement is the nurturing of a knowledge creating and learning environment to enable the organization to exploit and develop resources better than competitors, and create sufficient knowledge to address the industry's future success factors. Knowledge management can play a critical role in the strategic management of its human capital and to leverage its knowledge base for business performance improvement. KM should probably be a key pillar of the human capital strategy, along with competency management, performance management, and change management. Even though the need is great for knowledge management in government organizations, many of these agencies do not have a clear vision or strategy as to how to implement KM in their organizations.

Before proceeding, we must first define what knowledge is. Knowledge is best defined in terms of three related but not interchangeable concepts. Data are a set of discrete, objective facts about events. Information is an organized data presented in context. Data becomes information when its creator adds meaning or value. Similarly, knowledge is derived from information as information is derived from data. Knowledge can be viewed as information in context, together with an understanding of how to use it (Davenport & Prusak, 1998). Since knowledge can be found in many forms, the interlocking of data and information sources when combined with human assets, produces an evolving learning environment. This is evident in the building block approach of data to information to knowledge. The infinite number of sources (i.e. databases, policies, and procedures, etc), when organized, can enable an organization to better manage the learning process. In organizations, it becomes embedded in documents and repositories, in organizational routines, in processes, practices, and norms. There is a slightly different definition given by Alavi and Leidner (1999). They see knowledge as a "justified personal belief that increases an individual's capacity to take action". Knowledge is a very important resource for preserving valuable heritage, learning new things, solving problems, creating core competencies, and initiating new situations for both individual and organizations now and in the future.

The popularity of knowledge management has increased rapidly, particularly since 1995, and it has become a central topic of management philosophy as well as a management tool. There is no one simple definition of KM. One reason for this lack of agreement, stems from the fact that people working in the KM field come from a wide range of disciplines, such as psychology, management science, organisational science, sociology, strategy, computer sciences, production engineering and so on. However, in the simplest term, knowledge management means exactly that: management of knowledge. It can be extended to management of organizational knowledge for creating business value and generating a competitive advantage. It consists of the processes required to effectively manage knowledge. It is a systematic, explicit and deliberate building, renewal and application of knowledge to maximize a firm's knowledge-related effectiveness and returns from its knowledge assets (Wiig, 1997). As Drucker (1995) predicted, knowledge has become the key economic resource and the dominant source of competitive advantage today. In most cases, the term is used loosely to refer to a broad collection of organisational practices and approaches related to generating, capturing and disseminating knowledge relevant to the organisation's business.

In organizations, there are two types of knowledge, namely explicit and tacit knowledge (Nonaka and Takeuchi, 1995). Tacit knowledge is obtained by internal individual processes and stored in human beings. Such knowledge is sometimes described as experience, reflection, internalization or individual talent.

Explicit knowledge is stored in a mechanical or technological device, such as documents or databases. This knowledge would be more useful if it could be shared and used among the community that works together using collaborative technology at anytime, anyplace and anywhere as shown in Figure 1.

REAL TIME KM SCENARIO

In contrast, tacit knowledge is stored only in the mind of an expert and is not available for inspection, so it cannot be captured, documented, verified, codified, and disseminated by a team of domain experts and knowledge intermediaries.

Continuous reinvention of the organization through learning is a key feature of knowledge management. An organization's distinctive competence is based on specialized resources, assets, and skills it possesses. Knowledge, whether explicit or tacit, is a distinctive competence that can be used to build competitive advantage and economic wealth. To harness the business value of tacit or explicit knowledge, an organization must create an environment that enables management of knowledge.

Knowledge management is an integrated, systematic approach to identifying, acquiring, transforming, developing, disseminating, using, sharing and preserving knowledge, relevant to achieving specified objectives. It is a process of creating, structuring and leveraging collective know-how, experience and wisdom of an organization to improve business performance. Knowledge sources may include databases, documents, policies and procedures, as well as the un-captured tacit expertise and experience stored in individual workers' heads'.One of the difficulties in Knowledge Management Systems is that knowledge sources are widely distributed and exist in many forms. As diverse sources of knowledge accumulate in the company, it becomes more difficult for the knowledge seeker to locate and access the desired knowledge. The knowledge seeker may be unaware of knowledge sources and may not have the software necessary to access the knowledge. Since knowledge is widespread and varied (in type) in an organization, a means of keeping track of the knowledge stored by the organisation and accessing is paramount.

In reviewing the literature, it appears that many government organizations do not have a strong KM strategy and an associated KM implementation plan. KM has proven to be a strategic and value-added endeavour for improving an organization's effectiveness. For example, according to the American Productivity and Quality Center (2002), Chevron had a US $2 billion reduction in annual operating costs through its communities of practice and transfer of best practices. The KM focuses on processes and knowledge flows. In addition, these processes are often supported by shared databases, and document management systems. For example, Hewlett Packard has documented a very large number of their business processes with Knowledge Management Systems. Other examples include Pacific Gas and Electric Company, Texaco, and British Petroleum, all of whom have Knowledge Management Systems that focus on storing their businesses' best practices. Schlumberger used their technical communities of practice, intranet, and portal to save US $75 million in their first year of knowledge management activities, with US $100 million projected customer savings. Hence, there is a culture in these organizations that emphasizes sharing of knowledge between employees in the organization.

This article will discuss components of the knowledge management implementation plan and KM imperatives to achieve its strategic business objectives. NTPC, a leading navratan government organization (PSU), considered the these case examples while developing its KM system.

CASE

NTPC, the largest power company in India, was setup in 1975 to accelerate power development in the country. It is among the world's largest and most efficient power generation companies. In the Forbes list of the World's 2000 largest companies for 2007, NTPC occupies 411th position. It has diversified into hydro power, coal mining, power equipment manufacturing, oil and gas exploration, power trading and distribution. NTPC is now in the entire power value chain and is poised to become an integrated power major. NTPC has set new benchmarks for the power industry both in the area of power plant construction and operations. NTPC has more than 30 years of accumulated knowledge, which emerged from the recommendations of the Disha Project conducted in 2004 for NTPC's transformation in consultation with AT Kearney (a MNC consulting company). NTPC developed and deployed an enterprise wide knowledge management portal "Lakshya" as a means of cataloging, tracking, and accessing knowledge in the organization. It offers an one-stop knowledge sharing in a familiar, easily created environment. Lakshya makes all of the knowledge available to the company, accessible from an integrated central source. Since various types of knowledge differ in their completeness and accuracy, the design of the portal is used to influence the user to use the most accurate source. In order to create a knowledge management system in NTPC, a framework needs to be built. The basic building blocks consist of a lower tier involving knowledge management (KM) benchmarking, KM strategy, KM awareness, and KM target areas. KM benchmarking consists of seeing what others are doing in the KM area that relates to NTPC. Once NTPC learns what their competitors, or other global utility companies like British Petroleum, Texaco, Chevron are doing, then it can best determine the KM strategy that fits in with the NTPC culture. Part of the KM strategy is to educate employees on KM and create an awareness of KM throughout NTPC. The strategy then targeted specific areas where KM can best be applied in the organization for proof-of-concept and for addressing critical knowledge gaps in the organization where knowledge is 'at risk' of being lost. NTPC followed a codified approach of developing a best practices/lessons learned repository.

NTPC's divisions decided to collect trouble shooting knowledge from engineers through emails, and categories according to technical product line and make it accessible through the web. It built thousands of technical tips and FAQ (frequently asked questions) problem resolution time. A team of CKO/ domain leader/affinity groups were then formed from the existing workforce. The KM initiative began with an awareness programme conducted across NTPC, explaining the importance of KM at all levels. Before the KM initiative, technical training was provided on the basis of the requirement of individual divisions, mostly through instructor lead class room programmes. The KM learning team worked out a common framework of access, identify and build, for the whole of NTPC. Recently, an e-learning approach with the online portal "Lakshya" introduced, provided learning resources, and this is reducing training costs and increasing flexibility. Competencies of all the employees are available and the competency map acts as a guiding force for competency development for competitive advantage.

THREE CRITICAL ASPECTS

NTPC's Knowledge Management System is focused on three critical aspects:

External Knowledge

* Subscription/membership to domain specific industry reports

* Subscription/membership to domain specific technology journals

* Capturing trends in the external environment (international and national)

Internal Knowledge

* Capturing and assimilating explicit and tacit knowledge residing within NTPC

* Making the captured knowledge available to employees for re-use

* Updating internal knowledge

Collaborative Tools

* Chat

* Message boards

* Polls

The initiative started with a knowledge needs identification workshop conducted for business units, wherein groups of people performed an exercise and identified critical knowledge needs for their businesses. The seeds of an enterprise wide KM system were sown. Road maps for individual business units were also drawn up. Templates were created and used as knowledge capturing mechanisms. Using the existing IT infrastructure and network, a web based KM repository was introduced to store knowledge and enable people to have quick access. Essentially, KM is about accessing expertise and enabling people to access experts from distant places with ease. Managing organizational expertise through an expert system that enables the right knowledge at the right time by connecting the knowledge need to the knowledge node is valuable for KM. Channels were established for knowledge collection, through which contributions from people started coming. (Generally, knowledge sharing is easier through informal chats rather than formal rules. Efforts should be made to identify as many informal channels as possible and make them part of the KM strategy). Right at the beginning, a taxonomy was created to store and access the content in a standard way across business units. All employees were able to access the knowledge repository using their desktops and laptops. Top items of the knowledge repository were packaged and disseminated for immediate consumption on a frequent basis. So far, we have seen some kind of a cultural transformation taking place within NTPC, and KM being accepted as a vital work enabler, and the flow of knowledge collection and dissemination has started. Knowledge management is not an end but a journey in itself. As they progress, the need for an advanced KM system is being felt, and this is being evolved using the IT and e-business consulting expertise available within the organization.

KM imperatives of NTPC: NTPC's knowledge management imperatives are derived from its strategic objectives and HR vision of becoming a "Learning Organisation".

KM technologies and tools were used as an enabler for knowledge sharing, through NTPC's web based portal Lakshya. Since technology is just a small piece in developing a knowledge management capability, the processes, culture, and people components were considered carefully in order to become a learning organization. Following issues have been considered while designing the NTPC KM system:

* What are the knowledge processes that are critical to creating value and competitive advantage?

* What are the characteristics of the relevant knowledge?

* What mechanisms are needed for the generation and application of relevant knowledge?

* What organizational conditions need to be in place in order for knowledge management mechanisms to work?

- Organization structures

- Incentives for contributions and users

- Behavioral norms and values

The next phase involved developing and measuring KM pilots and instilling a change management program in NTPC, in order to transform individual learning into organizational learning. KM processes are to be embedded into the employee's daily work activities so they are seamless and interwoven throughout the fabric of the organization. NTPC's KM did not system cost any extra funding, as it was customised during the ERP implementation through SAP.

Once the KM pilots achieved success and a change management process underway, full implementation of these pilot projects will occur, given the necessary resources. A kind of virtual organisation has been setup to deploy the KM system in NTPC headed by a Chief Knowledge Officer (CKO). CKO is being assisted by a full time core group. Knowledge domains are formed based on specific areas. Further, affinity groups are formed to support domain leaders in updating and archiving the knowledge base.

To develop the KM organizational infrastructure, critical elements needed include: the establishment of a full-time core group; assigning domain leaders to projects in a parttime capacity; reassigning existing roles of affinity group members to help achieve KM goals; and embedding knowledge management processes into the daily working activities of NTPC employees. The roles and responsibilities of some of these individuals are given in the Annexure.

The KM process at NTPC consists of the following steps, comprising assimilation of knowledge from various locations and uploading on the KM intranet for dissemination:

1. Identify and appoint domain leaders

2. Identify and appoint affinity groups in each plant

3. Seek and assimilate knowledge in the respective domains

4. Submit knowledge capture documents to affinity groups in their respective locations

5. Electronically submit captured knowledge to domain leaders

6. Capture knowledge from all locations

7. Classify knowledge, create categories

8. Approve documents uploaded in the KM portal

9. Facilitate and assist domain leaders

10. Users download knowledge documents at all locations

In the first year (2007), NTPC tried to create an awareness of KM at all levels in the organization, and educated people on KM, set up the technology infrastructure as an enabler for knowledge sharing, and provided some quick-wins to show the value of KM. In the second year, the goal was to create the organizational infrastructure to infuse KM throughout NTPC (KM Organization), and expand various KM pilots and activities into full-fledged projects (KM implementation).

Following are significant challenges for NTPC in effectively managing its accumulated knowledge base:

Capture and Structure Knowledge

* One of the difficulties in knowledge management is that knowledge sources are widely distributed and exist in many forms. To support different types of knowledge sources, a common interface is required that allows access to many types of knowledge

* Learning and experiences are not captured and summarized; referring to past documents makes re-use of past experiences cumbersome

* Tacit knowledge residing with individuals is not documented

* Experiences by addressing various stakeholders interests (government agencies, NGOs etc.) for project approvals have not been documented

* Inadequate communication across functions, levels and geographies inhibits knowledge updation

* No formal process for classification and codification of knowledge resulting in difficulties in knowledge retrieval

* Past knowledge not adequately used to develop and update methodologies and guidelines for improving work efficiency.

Create Knowledge Sharing Environment and IT Enablers

* Lack of enabling IT systems to enable speedy retrieval of knowledge across levels, functions and geographies

* Conversion of past documents from hard formats into soft formats requires significant efforts

* Inadequate communication across functions inhibits knowledge sharing

* No processes to create awareness about the existing knowledge base across functions and geographies

* No recognition and rewards for contributions to knowledge management

Disseminate and Apply Knowledge

* Knowledge and experience resides with individuals; sharing is relationship based

* Project completion reports that capture the learning of each project are not adequately shared across plants

* Past documents (proposals, project reports etc.) are stored manually, or on local PCs, making it difficult for them to be shared across functions, levels and geographies.

The Knowledge Management System provides several benefits to NTPC:

* Develop NTPC into a learning organisation by creating a culture of knowledge sharing

* Build an environment of trust and openness

* Prevent "re-inventing the wheel" - reduce employee efforts to seek knowledge and experience

* Improve efficiency - employees spend more time in analysing rather than in searching for information

* Reduce lead time in business processes and day-to-day activities

* Reduce costs through sharing of ideas and best practices across plants

* Capitalize on external knowledge for identifying revenue enhancement opportunities for NTPC.

The most important use for the KM portal Lakshya is to facilitate knowledge reuse by providing an integrated portal for all knowledge sources. This portal organizes knowledge assets by topic and type, and contains the necessary software to access all of the knowledge sources. The user searches the available knowledge sources by context, and is shown listings of appropriate knowledge grouped by knowledge type. The KM portal obtains the user's request, loads the appropriate data and software, and displays the knowledge to the user.

The other uses of this KM portal are to evaluate the depth and breadth of knowledge management within NTPC. This portal is an inventory of knowledge assets that users can search by context, thereby determining the availability of knowledge sources for specific domains. This KM portal may also be used as a planning tool for knowledge management by locating knowledge and expertise for future knowledge efforts.

CONCLUSIONS

This article presents some important elements of a KM implementation plan that may be used as a role model for other project-based, technically oriented organisations to follow. This article also provides a mechanism for organisations to benchmark their knowledge management activities and to develop a knowledge management strategy. Without incorporating KM into the human capital strategy of an organization, there may be some major knowledge gaps resulting putting the organization at risk in the near future. This article also developed a framework for building the KM system in organization. NTPC is used as a case study in applying this framework. One of the most difficult parts of implementing the KM framework is the change management component - that is, how to embed knowledge sharing activities into everyone's daily work life without asking that something extra to be done. In NTPC, the new project and program management policies and guidelines required that lessons learned be captured and applied during all phases of a project life cycle.

This study was carried out as the first step in the process towards not only improving understanding of KM, but also proposing valid management alternatives to enhance an organisation's value and competitiveness. It has produced a number of interesting and informative findings. The results highlight the relevance of the KM framework, which can be used to guide organisations in establishing a systematic KM approach. KM is used to facilitate knowledge sharing roles, and government organizations can take advantage of this study in developing a KM strategy and linking it with on organization's mission and vision.

IMPLICATIONS

Knowledge Management Systems are dedicated to retaining and leveraging knowledge. What emerged from the analysis is the importance of the concept of knowledge sharing. This KMS study will help other organizations as they embark on their KM journey.

Organizations should be able to induce the requisite behavioural change among people who are contributors and users of knowledge. It requires strong leadership to bring in cultural changes, set the right direction, and continuously monitor progress. Using appropriate rewards and recognition programmes is also necessary. This framework encourages both bottom-up and top-down approaches to accelerate culture change.

Subject: Knowledge management; Electricity generation; Corporate culture; Qualitative research; Case studies

Location: India

Company / organization: Name: NTPC Ltd; NAICS: 221122

Classification: 9110: Company specific; 8340: Electric, water & gas utilities; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 41-53

Number of pages: 13

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600206

Document URL: http://search.proquest.com/docview/745600206?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 24 of 100

SECTION 1. FOCUS ON KNOWLEDGE MANAGEMENT, TECHNOLOGY TRANSFER AND INFORMATION TECHNOLOGY - Chapter 5. Managing Technology Transfer Using the Stage Gate Approach

Author: Lonseth, Robert; Maheshwari, Bharat; Jagoda, Kalinga

ProQuest document link

Abstract:

This case study focuses on highlighting issues firms face during technology transfer, if the process is not managed well enough. A systematic approach to managing technology transfer is introduced using the technology transfer experience of Rayton Packaging a leading packaging firm situated in Calgary, Alberta Canada. This case provides some interesting facts of an international technology transfer within the NAFTA region, and illustrates that a technology transfer project cannot be considered to be effective unless it also leads to profitability and growth for the firm. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Technology transfer (TT) in today's globalized business settings is seen by firms as a prime means of improving business operations. However, management literature suggests that many technology transfer projects fail to produce the desired results as they are not managed properly. Firms often forgo some of the key activities involved in the technology transfer process. This case study illustrates the technology transfer experiences of Rayton Packaging (RP) using the Stage-Gate Approach as an enquiry lens. Stage-Gate approach for technology transfer has been developed by Jagoda and Ramanathan (2005) for managing technology transfer projects efficiently. The approach briefly described later in this case conceptualizes the technology transfer process as a set of stages, decision gates, and key activities. The case study is organized in five sections. The next section provides the background information of the company. Section three briefly describes the Stage-Gate approach as applied to the context of technology transfer. Section four describes Rayton Packaging's technology transfer experience using the Stage Gate process as a reference lens. The last section provides a brief discussion and conclusion to the case.

COMPANY BACKGROUND

RP is a leading packaging manufacturer based in Calgary, Alberta Canada. With more than $20 million in sales, it is one of the largest packaging manufacturer in Western Canada offering a full range of packaging products and service. Currently Specializing in flexographic printing, RP was established in 1974 in Calgary, Alberta. It mainly manufactured plastic bags and pouches for the local supermarkets. Since then, the company has grown significantly and expanded its product lines to include medical specimen bags, polyethylene sheets and tubing's, polyethylene bags, produce packaging, re-closable bags, and permanent packaging. They supply their products primarily to businesses that are located in Canada, and the United States.

RP is one of the three large packaging companies in Western Canada which are offer the full range of packaging products. Its two major competitors are located in Vancouver, British Colombia. Overall, the packaging field consists of several small companies which produce specialized products. RP is a dominant packaging supplier in the food industry. Its main market is in Western Canada including the provinces of British Columbia, Alberta, Saskatchewan, Yukon, North West Territories and Manitoba. However, a major chunk of its revenues come from the province of Alberta, in particular from companies in Calgary. It enjoys strategic location proximity to many of the firms servicing Western Canada through warehouses and distribution centres in Calgary, which is the commercial capital of the province of Alberta and a major business centre in Canada.

With increasing globalization, RP faces increasing challenges from low cost manufacturing countries such as China and Mexico. It is becoming increasingly common for some of its clients to procure commodity products such as grocery bags in large quantities from overseas firms. However, many customers still require small quantities of customized products with higher quality. These types of products were very difficult to get from overseas and even across the country (eastern Canada) because of the shorter lead time. The competitive strategy of RP is to diversify into higher value added markets and capture this segment of the market by developing flexible manufacturing capabilities to turn over customized high jobs really quickly. Continuous innovation through acquisition of new technologies plays a key role in implementing this strategy.

In this case we focus on a technology transfer carried out by RP and analyse it using the stage-gate approach. The technology that is being transferred is a "process printing" technology. It uses a series of miniscule dots allowing for a vast arrangement of colours to be created, resulting in clearer and more diverse images. The original technology producer is Bielloni, of Italy, a world leader in printing equipment. However, in this case, the transferor is a subsidiary of GE, which has signed a ten year lease with the original supplier and is extending it to RP. General Electric (GE) is an international conglomerate, and has plants in various parts of the world. The total transfer cost is approximately 1.3 million Canadian dollars. Interestingly, this technology transfer extends a win-win opportunity to both companies. While the transferor is able to leverage an under-utilized technology by offloading it to another company, RP, as discussed in the case later sees this as a strategic opportunity to upgrade its technology portfolio. This technology offers it much needed flexibility to take up multi-colour printing jobs at significantly lower prices. Process printing technology also allows RP to take up more complex colour jobs with high quality requirements.

WHAT IS STAGE GATE PROCESS?

Stage-gate process was developed at NASA as a guide to effectively manage large and complex projects and has been extensively applied by firms in their new product development initiatives (see Cooper, 2001). With its flexibility, scalability and ability to integrate with portfolio management theory, it has been used in many other areas. Jagoda and Ramanathan (2003, 2005) adopted this stage-gate process to develop a systematic approach for managing technology transfer. Summarily, the stage-gate model for technology transfer is an operational map which consists of six stages and gates. In each stage the technology transfer project team carries out prescribed activities, tasks, and collection, integration and analysis of information for decision making at the subsequent gate. Before the project progress from one stage to the next it needs to pass thorough a gate where go/ kill/recycle or hold decision is taken. When properly the implemented, the stage-gate approach allows firms to spot underperforming projects early and a decision could be taken to kill or send them back to rework before further resource commitment. This model allows companies to minimize the risk of failures in technology transfer projects. The model is shown schematically in Figure 1.

The Stage-Gate model for technology transfer was deployed as a theoretical framework in this case to illustrate the technology transfer experience of Rayton Packaging. The following section analyzes the technology transfer experience of RP. We compare the process undertaken by RP with the activities suggested in the stage gate approach for technology transfer. Close attention to the issues emerging has been paid by examining the activities in various stages as delineated by Jagoda and Ramanathan (2003, 2005). The implications of not using some of the activities and tasks are also discussed. Activities suggested by Jagoda and Ramanathan (2003, 2005) are listed italics in the text section.

Analyzing the Technology Transfer Process at RP using the Stage Gate Approach

Stage 1: Opportunity spotting and identifying value enhancing technologies

Activity 1: Identifying key technologies needed

This technology transfer project/need was triggered in the fall of 2005, when Rayton Packaging (RP) was approached by Cascade Packaging (CP) to fill some of its orders that had previously been filled by another packaging firm in Eastern Canada. At that time, RP was only capable of line printing which would not be sufficient to complete CP's orders. It was necessary for RP to acquire process printing technology in order to meet the needs of CP. This project was deemed strategic as it would increase revenues substantially.

Activity 2: Construction of technology roadmaps to gain insights into technological trends

As one of the largest packaging manufacturers in Western Canada, RP was in close contact with several agents of printing machine manufacturers. Through conversations with them, RP had access to a surplus of information on process printing. CP's new business was estimated to generate approximately C $3 million in revenue a year. Several suppliers flew in salesmen attempting to sell RP a new printing technology. However, with an average price tag of C $4 million, this was not considered a financially viable approach.

Activity 3: Carrying out a preliminary market assessment

RP was already a market leader in Western Canada. Its main objective was to retain its market share through improved productivity and delivery lead time reduction. RP's study of the market showed that several of its client companies were filling their process printing needs from manufacturers in Eastern Canada. The President concluded that by acquiring process printing technology, they would be able to garner additional business as some of their existing clients would be able to locally meet their demand for process printing.

Activity 4: Carrying out a technical assessment

RP had been in the industry for over 30 years and had assimilated considerable knowledge in the printing process and related technologies. The proposed process printing technology would allow them to print several colors at a time compared to line printing which allowed just one color at a time. It was clear that the only option to fulfill their client's needs was acquiring a process printing press. These new presses were capable of printing 10 different colors, and could run at 2000 ft/minute. Since the capabilities of a new press were in excess of the demand, it became evident that a used or older model press would be sufficient. Printing at 800 ft/minute with a range of eight colors would be more than sufficient to meet the demands of CP.

Activity 5: Creation of a formal Technology Transfer Steering Committee (TTSC) to manage the project

The President of RP decided to initiate a technology transfer project to acquire process printing technology which suited their needs and created a cross functional committee of his top executives to oversee this project. The committee formed was based primarily of major functional managers who were deemed to have a key role in the process. For example, they included the printing manager, since he had experience in process printing; the sales manager, so that he would be aware of the new process and product that could now be sold; and the production manager.

Gate 1: Confirming Identified Technologies

Since the President of RP initiated and championed this project, the go-ahead was given relatively easily by the board which essentially comprised of the firm's ownership. Adequate funding was also allocated for this new process, as this technology was deemed as a strategic investment. The key argument which provided a strong business case for acquiring the new printing technology was that it allowed them to strengthen their reputation, increase business and bargaining power both locally and globally.

Stage 2: Focused technology search

Activity 1: Developing a clear set of specifications for the technology being sought

This was an area that RP found little success in accomplishing. There were many things related to the technology that RP was unaware of, prior to purchasing the technology, for example, resolution, dots print coverage, and percentage of ink letdowns. As a result of not having these in their vocabulary, they were unaware that these were significant issues when looking at this technology. They also did not take into account that a graphic designer would be necessary in creating the artwork for the process printer. As a result they learned of these issues the hard way.

Activity 2: Elaborating how the technology sought is expected to enhance customer value and enhance competitiveness

This too was a weak area. The company saw the printing press as a transfer of a machine rather than a transfer of technology. As a result, the lead time required after acquisition of the technology to put it into effective used was significantly higher.

Activity 3: Assessing abilities available in-house and identifying gaps, estimating resource commitments, and expected benefits

Interestingly, this key component of the technology transfer exercise was not considered at all by the company. RP is appears to be taken learn and solve-as-you-go approach. Consequently, this also affected the post acquisition lead time in putting the technology to use.

Activity 4: Developing a preferred supplier profile

At the time of their research there were two or three brokers that bought and sold printing presses. RP was in contact with these brokers however; they were not able to come to an agreement. Their close contact with the sales agents of original equipment manufacturer helped them in getting quotes on different presses. Their most successful tool was Internet based research.

Activity 5: Developing a list of supplier firms and initiating communication with them

RP once again was focused on a machine rather than transfer of technology, this posed to be their largest downfall. They never completed a full evaluation of their suppliers. Activity6: Identifying assistance from technology intermediaries and government institutions.

The committee never considered seeking assistance from technology intermediaries and/or government institutions. It considered this as a simple project and they had adequate expertise in-house. RP did not investigate the opportunity of applying for tax concession plans offered by the provincial and federal governments.

Gate 2: Project Confirmation

After considerable research, the committee had established the need for a used process printing press. Although new machines had higher printing capabilities and output, this was not a necessity to fill CP's demand. The machine acquired was a 10-year-old lease return from a Wisconsin based company General Electric (GE). The product came from a highly established printing press manufacturer out of Italy known as Bielloni; the specific model type was the Lisa-95. There were no trade barriers to the purchase as it was bought out of the United States. The only issues that arose were when repairs and maintenance were required on the machine.

Stage 3: Negotiation

In this technology transfer project, there were only two parties involved, the buyer - RP, and the seller - GE. Given that there were only two parties involved, there was no real complexity in the negotiations.

Activity 1: Agreeing on a basis for the valuation of the technology and reaching agreement on issues related to payments and intellectual property protection

The President of RP had over 20 years experience in the industry, which allowed him to accurately estimate the price of a second hand lease return printing press. The final negotiated price was just over the lease buyout price. This was offered by RP's President with the reasoning. The transferor wanted to get rid of the printing press, and agreement was reached on the price. In the end, RP was able to acquire the machine for half the selling price of the press.

Activity 2: Reaching agreement on each party's contribution and responsibilities towards the technology transfer project

The negotiations were limited to price, there were no discussions regarding warranty, parts or servicing. Apart from the negotiation on the price, there were very little negotiations between the parties. If the C $4 million printing press had been acquired, there would have been several negotiations regarding warranty, parts, support and maintenance. However, this purchase was seen only as the purchase of a new piece of machinery; therefore, no other information was sought.

Activity 3: Reaching agreement on issues and methods related to the transfer of codified and uncodified aspects of technology including training

Codified knowledge pertaining to operations and maintenance was expected to be transferred through operating manuals. These manuals would include the original manuals from when the machine was first purchased ten years earlier. The manuals were in English as the machine was acquired from the United States. There was no agreement that was put in place to transfer uncodified knowledge and this created delay in latter stages when the firm tried to put the technology to use.

Activity 4: Establishing effective channels of communication between both parties

Lean communication was the form of communication throughout the entire process. This was not the ideal method. All discussions were done through telephone calls, and confirmations were done through email. Senior RP executives traveled to Wisconsin to visit GE's factory to see the machine.

Activity 5: Consulting government authorities to ensure concurrence with government policies and identification of possible barriers, likely policy changes, and government support available

No major barriers were seen, as this was simply a transaction within the North American Free Trade Zone. Both companies were familiar with the cross-border transactions; therefore, this did not pose any difficulty.

Activity6: Finalizing the Technology Transfer mechanism(s)

This step was as simple since RP was sending the money in return for GE sending the machine. The machine was sitting in a warehouse, GE paid for the load up and RP covered the shipping.

Activity 7: Reaching agreement upon payments

RP had to send the full payment for the technology before the transferor sends it to the transferee. RP had enough finances to cover the cost of the machine. As soon as the money was received, and the cheque was cleared, the printing press was sent.

Activity 8: Preparation of a detailed technology transfer agreement

Both parties were familiar with this type of transactions. As both companies involved in cross-border transactions regularly, this did not create any problems. The entire agreement took two weeks. The agreement was completed quickly. There were no intellectual property issues that needed to be dealt with by reaching an agreement.

Gate 3: Finalizing and Approving Agreement

This gate did not pose difficulties due to the continuous communication between the parties. The agreements were approved quickly. Both parties treated this project as a simple purchase of plant and machinery. Transferee was eager to acquire the technology to start production of the new line and it appears that they did not pay enough attention to components of technology (knowledge required to operate, organizational changes required, technical knowhow) other than getting the machinery.

Stage 4: Preparing a technology transfer project implementation plan

Activity 1: Identification of changes to be made to the organizational structure and work design

Before the machine was purchased RP had to rearrange the plant layout in order to incorporate the new piece of machinery. A hole needed to be dug and a large slab of concrete was poured. Also, a natural gas line was installed and the ventilation system needed to be upgraded to account for the increased exhaust fumes. There were a lot of physical changes that needed to be made to the plant. With the printing press came the need for a better artist, the organization was fortunate that a spouse of one of the employees was trained in this profession. She was easily hired and filled the role perfectly.

Activity 2: Identifying changes to be made in the knowledge management system and policy regimes to accommodate the new technology

The operating instructions in the manual and standard operating procedures had to be assimilated by the operating and printing managers. RP had the practice of carefully recording such instructions for training purpose. They had adopted similar this approach in previous technology transfer projects, and the managers knew how to record and codify relevant materials for updating the knowledge management.

Activity 3: Developing pragmatic training and education schedules for the workforce

It was decided to carry out all training in-house. The printing manager was quite familiar with the technology and undertook the responsibility for developing the training plan. He did all training in house. This included safety considerations, machine operation processes and adjustment processes.

Activity 4: Formulation of measures to build good relationships between the transfer personnel

As mentioned earlier this was treated as a pure business transaction in purchasing a piece of machinery. RP was confident that they could handle the installation and operations by themselves. No specific measures appear to have been taken, and there were none negotiated initially.

Activity 5: Formulating a realistic technology transfer project implementation plan that can form the basis of a working relationship between the transferor and transferee

The lack of this step proved to be detrimental. The only relationship between RP and GE was the purchase and the delivery. Since there was no relationship established RP did not receive any additional support with their new technology.

Activity 6: Reaching agreement upon milestones to help strengthen project management and control

The main milestone was the delivery of the machine and installation. The new piece of machinery showed up disassembled on seven semi trucks, the installation process went smoothly and was finished according to schedule.

Gate 4: Transfer Schedule Finalization

It appears that this gate did not cause any delay and approval was granted. Management felt that since they had assembled an experienced team of senior managers and technical staff they could expect implementation without delay.

Stage 5: Implementation

Activity 1: Identification of changes to be made to the product or process to suit local conditions

The process itself was very standard, but one issue that occurred was with the ink. The inks were tested at sea level resulting in a bulk of the research and knowledge only being effective at that altitude. Calgary's altitude is significantly higher, resulting in inks evaporating differently. This caused them to perform differently than expected, resulting in experimental testing until the product was working to expectations.

Activity 2: Recruiting and selecting personnel not already available within the organization and training existing staff

As stated before, they were very fortunate to have staff in the facility that were trained and experienced in running the new press. The only issue that arose was acquiring an artist to create the complicated artwork associated with process printing. Fortunately, they were able to hire someone close to the organization to fill this role, and they did not have to allocate a lot of recourses to recruit this individual.

Activity 3: Developing an improved remuneration plan to facilitate change management

This was treated as an addition of a machine to their existing production process. The workers were reallocated to the new process. There were no major changes in the remuneration structure.

Activity 4: Formulating arrangements with ancillary suppliers of materials, parts and services based on a make vs. buy analysis

Due to the elevation of Calgary and lack of local suppliers of high end printing plates, RP faced challenging issues. Through substantial amounts of time and experimentation, RP finally developed a adapted ink for the change in elevation, as the industry standards were all tested at the sea level. The process printer required high end printing plates that could not be found locally. After several ruined projects from blurred and distorted images, RP concluded that standard printing plates were insufficient. The major issue with upgrading the printing plates was the only suppliers were in Eastern Canada. With only one company in North America that repairs these highly specific printing presses, any critical work needed could require a year waiting time. The last major issue was lower quality of the standard ink. The new ink for the process printing press was three times the price; this was not calculated in the initial expenses. However, each of these steps had to be integrated in order for the process printer to perform to industry standards and client expectations.

Activity 5: Maintaining links with government authorities to keep track of policy changes

RP viewed this only as the purchasing of machinery and it never became obvious to them that any type of government intervention was an option. However, at the time of the transfer, the provincial government introduced several policies which aid creation of new jobs and adoption of new technologies through grants and/or tax benefits. Firms may stand to lose a significant opportunity if these grants and tax benefits are not explored.

Activity 6: Commissioning the transferred technology on or before schedule

The printing press arrived on time. However, RP's implementation staff which had little installation experience damaged the drum during installation. Once the repairs had been taken care of, it took the staff over a year to get the printing press running to its potential. This was six months longer than the expected time.

Gate 5: Implementation audit

When it came to problem solving, or any issue for that matter, the transferor did not play any role after the shipment arrived. RP expected there to be minor issues with the printing press as they were buying a 10-year-old press. Initially the main issues were the bearings not running 100 percent; this was a quick fix and the least of their worries. Running the printer in process printing mode, and understanding the all the inputs required was the main issue. After 12 months of trial and error, and press was running at full capacity in the process printing mode. All problem solving was undertaken by RP themselves.

Stage 6: Technology transfer impact assessment

Activity 1: Assessing the actual outcomes of the technology transfer project from market, financial, technological, and organizational perspectives

There was no new measurements that needed to be developed as RP already had measurements in place on the impact that customers had with the business. RP had a very extensive system for performance measurements that was applied machine-by-machine with customized parameter. As a result, RP had more than enough data so any issue could be assessed quickly without any real problem. When the new printing press came and they started measuring all the costs involved, the startup cost was substantially more than expected. Once the machine was running up and running, it took several months before they were getting any revenue from it.

However, the initial plan to supply CP from the process printer was short lived. RP's largest client for the technology was purchased by a US based company. Fortunately, they were able to find new customers that allowed them to cover the initial costs. Although the profits were slim, they were still able to make a profit from the process printing press.

Activity 2: Identification of the variances (if applicable) between actual and expected outcomes and the formulation of organizational corrective measures

RP concluded that the reason they were unsuccessful was due to the initial lack of knowledge in process printing. It took RP over a year to understand the process printing process resulting in revenues taking over a year to initiate. As a result there were significant amounts of money lost in the initial year.

Activity 3: Evaluating the adequacy of corrective measures that were implemented

Corrective measures were needed as the firm learned more about the new technology. The fact that the firm was unsuccessful in turning a profit suggests that the corrective measures were ineffective.

Activity 4: Examining the feasibility of improving the transferred technology

At the time of the research, RP was in the beginning stages of the learning and operational areas of the technology. As a RP's main aim was to master the operations of the machine rather than making changes in the design of the machine. RP's main focus was on learning how to get the best out of the technology through the improvement of operating procedures.

Activity 5: Identifying new or complementary technologies that could be transferred to consolidate the gains made

RP decided to focus on correcting their existing process and finding new customers for its products manufactured using new technology. When the study was conducted they did not have a plan to improve, or go for another technology transfer project.

Gate 6: Developing Guidelines for Post-Technology Transfer Activities

Based on the experience of this project, the President of Rayton felt that it could have managed the technology transfer project differently. He felt that Rayton should have acquired brand new machine and with warranty. The possibility of acquiring auxiliary items to supplement the process printer was considered. However, no firm decision had been taken.

DISCUSSION AND CONCLUSION

The stage-gate model provides a normative framework for planning and managing a technology transfer project. It is envisaged that if top management and planners of a technology transfer project use the proposed stage-gate sequence and carry out recommended activities, then problems can be minimized and, wherever needed, proactive action can be taken to avoid problems. Based on the application of this framework to this case, the following success and failure factors may be identified.

SUCCESS FACTORS

* The close contacts and frequent communication between top-level managers helped in easily establis and operate the TTSC at Stage 1. Being closely knit, the top management team informally shared information on various aspects such as financial, operational and marketing, thereby reducing delays. Experienced members of the TTSC were able to identify and evaluate the resources available in-house and the gaps that needed to be filled in Stage 2.

* Availability of a trained and educated workforce in-house. In addition, Rayton was able to find the required skilled workers not available in-house (graphic designer) easily. This helped the company to implement the project without delay.

* The knowledge and experience in other printing techniques, good knowledge of the local market and customer requirements helped the transferee to identify technologies needed. Strategic changes in the product portfolio were a major factor in the decision to acquire new technology.

FAILURE FACTORS

* The greatest mistake made by Rayton was that it did not develop a comprehensive business case in Gate Stage 1. Also, Gate 2 did not question the assumptions made in the development of the case, due to the anxiety of top management to acquire printing technology quickly. A tacit assumption had been made that Cascade would provide enough business to cover the initial costs. There was no elaboration on customer expectations and there is no evidence that the transferee looked at alternative scenarios.

* The decision to acquire used machinery was also created problem in installation and developing operations procedures. This could have been avoided by purchasing new machinery with warranty.

* As the transferee had limited contacts with the original equipment manufacturers of technology, it was difficult in Stage 3 to develop an appropriate plan to transfer codified and uncodified knowledge. Relying on the transferee to provide this knowledge caused problems in Stages 5 and 6. This eventually forced the transferee to develop procedural manuals by themselves. Late changes to the loading system by the transferee made it necessary for the TI to redesign the system and this caused delays in the implementation. Lack of full understanding of specifications needed in Stages 1 and 2 caused this problem.

* Developing a suppliers list mainly from the US limited the choice of suppliers. It appears that the transferee had overlooked Asian suppliers from whom it could have obtained the machinery at lower cost. One reason was that the transferee was reluctant to experiment with unknown suppliers.

* It also appears that the transferee did not carry out a proper technology transfer impact assessment at Stage 6. An assessment that examines the impact of the technology transferred on productivity, quality, output, costs, profits, process performance, skill upgrading, customer satisfaction etc. would have be valuable in planning technology transfer projects in the future.

* The transferee was not able to achieve the technological targets in Stage 6, due to problems in installation and operation of the machine in Stage 5. An appropriate implementation audit was not carried out, and the targets were not set with linked timelines. This mistake in Stage 4 made Stage 6 difficult.

This case provides interesting facts of an international technology transfer within the NAFTA region. The failure factors bring out two significant points. Firstly, there is a crucial need for planners of technology transfer projects to develop good skills in analyzing the technology transfer initiatives in relation to business results by critically examining customer and market expectations. Second, when new technologies are being brought in to cater to a new market, parallel efforts in market development are needed to ensure congruence with technological efforts. A technology transfer project cannot be considered to be effective unless it also leads to profitability and growth for the firm. In today's global business setting, technology transfer should be seen only as a component of business strategy and not in isolation as a technology project.

Subject: Technology transfer; Case studies; Packaging industry

Location: Canada

Company / organization: Name: Rayton Packaging Inc; NAICS: 561910

Classification: 8600: Manufacturing industries not elsewhere classified; 9110: Company specific; 9172: Canada

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 54-66

Number of pages: 13

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600020

Document URL: http://search.proquest.com/docview/745600020?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 25 of 100

SECTION 2. FOCUS ON DIVERSIFICATION, ACQUISITION, NEW VENTURES - Chapter 6. Carrefour and its Competitors in India

Author: Lapoule, Paul

ProQuest document link

Abstract:

It has not been as easy as one thought it would be, admits Thomas Varglese, CEO of Aditya Birla Retail, one of the top three supermarket chains in the Indian retail business. Many of the international retail executives who came to India to manage their new supermarket chains are handing in their papers and flying back home. In response to the maturity of their home markets, world grocery giants such as Wal-Mart, Carrefour, Tesco, and Metro are involved in a headlong rush into the liberalizing economics of Asia as they battle for supremacy. However, tapping into these growth opportunities is not straightforward. The world's fastest-growing economy over the next 30 years-50 years appears to be a much more complicated country than China or Brazil. He cannot comment on anything, as nothing is happening at their end, said Abdul Rab, Director of Business Development at Carrefour India. Carrefour has many times delayed its retail and cash and carry plans for India.

Full text:

SEPTEMBER 09

Bare feet, in the freshness of February, the "rickshaw" owner drives with his leg bent under him. Most drivers of these noisy scooters, drive naked feet. Under a large eucalyptus, an old Indian rubs his hands over a wood fire in the street. Loosely based on a tree trunk, a young woman looks for these cohorts of yellow and black scooters. Our driver drowns in a stream of Padmini taxis, dilapidated tricycles and tank trucks. He drives Alain Level, Operations and Public Relations Director at Carrefour India, to Delhi, where an experts meeting for retailing has been organized.

* "It has not been as easy as one thought it would be", admits Thomas Varglese, Chief Executive of Aditya Birla Retail, one of the top three supermarket chains in the Indian retail business1

* "The various impediments on the ground in terms of very high rentals and poor infrastructure have obviously put a dampener on many of ours plans. The retail arms set up by other Indian industrial groups, like RP Goenka's Spencer's and the Tatas'Star Bazaar, have also penalized us."

* "There have been a lot of delays in setting up real estate projects, getting properties on time and getting the fitouts done," says Amnish Aggarwal, a retail analyst at Motilal Oswal in Mumbai.

"However, the level of patience we have as Indians, is a lot higher, than people have when they come in from outside," explains Nitin Chordia, at Technopak, an Indian consultancy. "Our expectations are more attuned to reality. We understand the culture, consumer shopping habits and the country well. To be a local player is clearly an advantage; as buying local is vital for international groups (See appendix)."

Carrefour needed time to tie-up with an Indian partner to start retail operations in India. The company also delayed its retail plans to focus on launching cash and carry (wholesale) operations.2 The world's second biggest supermarket group by sales, is negotiating with over six Indian companies, including diversified business groups, retailers and mall owners.

INDIAN RETAILING

A Large Potential for Development

With Business Monitor International3 forecasting, that the Indian mass grocery retail sales would grow by 311 percent between 2008 to 2013, fuelled by the country's sustained economic growth4 and attendant increases in disposable incomes. A 2008 report by the consulting firm, McKinsey and Co, indicates that the number of potential shoppers at branded stores in India will jump fivefold in the next eight years from 13 million households currently, to 65 million households or 300 million consumers. Most people (70 percent of the consumers) shop at both local grocery shops and supermarkets despite growing inroads by organized retail, says a 2008 survey by an industry body-Associated Chambers of Commerce and Industry of India (Assocham). While 27 percent said they now go to local grocers less often, only 3 percent have stopped patronizing neighbourhood shops altogether.

The survey, part of a study called 'Indian Retailing-The Way Forward', interviewed 300 consumers and 150 retailers on changing shopping habits. Consumers said they looked at convenience and location in choosing where they shopped, followed closely by value for money they got on products. About 90 percent said they visited stores at least once a week, and preferred stores within 2-3 km from their homes. Many retailers said consumer preferences more than anything else have led the growth in the sector. "India is in the growth phase of retail evolution where consumers are demanding modern formats as the market develops, leading to strong growth'", said Assocham President, Venugopal Dhoot. A majority of our survey respondents felt that the opportunity for modern retailing is in the urban areas. While there is large potential in rural areas, fragmentation and the cost of market access are deterrents. India has a vast independent retail sector, a largely unorganized market.

Although declining, India's independent sector continues to dominate sales, and as a supplier to this sector, Carrefour would have access to a large customer base. Multiples account for just five per cent of Indian retail sales. Professor Paul Freathy, of Stirling University, said companies were struggling to sustain recent growth in mature markets, such as Britain, and had turned abroad for better returns (See appendix). "They can't afford to take their eye off the ball at home, however," Prof Freathy warned. "The UK, for example, accounted for around 55 per cent of Tesco's sales in its last full financial year. Foreign expansion has helped firms such as Tesco improve their offerings at home, with lessons from hypermarkets in Poland and the rest of central Europe, and convenience stores in Japan, both informing recent developments back in Britain. Transferring knowledge from one market to another is one of Tesco's strengths," he explained.

INDIA APPEARS TO BE MORE COMPLICATED

Wal-Mart is partnering with Bharti Enterprises in order to circumvent restrictive foreign direct investment legislation. Both enterprises have a 50:50 JV for wholesale cash-and- carry and back-end supply chain management. The first store of cash and carry opened in 2009 in Amritsar (in the north of India), under the "Best Wholesale Price Moderns". Wal- Mart is thought to be providing back-end functions and expertise to Bharti, and is expected to introduce its own brand as and when legislative changes allow. Others have moved even more slowly. Tesco signed an agreement with Trent, subsidiary of the conglomerate Tata, to help it in developing its activity of hypermarkets 'Star Bazaar'. In exchange for royalty, Trent benefits from the expertise and technical knowledge of Tesco. Trent also buys goods from the Tesco warehouses. Metro, Germany's biggest retailer, entered the Indian market in 2003 and had four stores in 2008. It has planned to invest US $120 million in at least four new cash - and - carry centres in an east Bengal state.

Although India allows foreign retailers to sell directly to other retailers or institutions, it bars them from selling to individuals (consumers). Foreign investment is prohibited in multi-brand retailing. The franchise route, where a foreign retailer appoints an Indian firm as a franchisee, is one way in which companies such as Carrefour can operate in India. But many of the international retail executives, who came to India to manage its new supermarket chains, handed in their papers and flew home.

WAL-MART EFFIGIES WERE BURNT

India could Become the Back Office of the World5

Analysts at Goldman Sachs predict that India will be the world's fastest-growing economy over the next 30-50 years. While many manufacturers are not aware of the latest developments in technology and logistics, India has clear advantages in industries like textiles, gems and jewellery, leather, stationary items and watches, and in services. India has also long been viewed as a potential goldmine for international store groups, as living standards rise and the present 90 million people middle class grows. From this number, some 20-30 million have taken on more debt than they can handle, estimates Alam Srivinas, author of The Indian Consumer.

Public Opposition to Chain Stores

Reardon et al. (2005), validated in research that the business of organized retailing in developing markets presents an exciting opportunity (See appendix). But Indian politics has been driving most regulatory reforms to date, and that seems unlikely to change in the next few years. India's 12 million 'mom & pop' retailers are at the heart of the debate. Domestic and foreign retailers with sweeping plans to set up nationwide chain stores are on one side, small shopkeepers and unions who fear being crushed by these emerging supermarkets are on the other. But no one anticipated the extent to which Reliance Fresh, Reliance's Indian supermarket business - which has formed a venture with Marks & Spencer-, would become a magnet for protests from small shopkeepers, traders and farmers, who last year forced stores in several states to shut down. Opportunist politicians in one of the fastest- growing economies in the world, then jumped onto the issue: Reliance Fresh is banned in India's most populous state, Uttar Pradesh. In a dramatic illustration of how heated this issue is, hundreds of farmers and small-scale retailers protested against foreign investment on the streets of major cities like Delhi, Mumbai, Bengaluru and Kolkata on August 7 (2008), near markets where vegetable sellers usually sell their goods. Wal-Mart's joint venture agreement with Bharti Enterprises to open 15 wholesale retail stores together by 2015, which was finally signed and announced on August 6 (2008), was the fuel used by organisers of the rally. Wall-Mart effigies were burnt and "Quit Retail" slogans were shouted during the protest, tying into India's Independence month and the "Quit India" movement that began on August 9, 1942. It was this movement that finally led to the end of British rule.

But a study based on a survey ordered by the Prime Minister's office, conducted by the respected Indian Council for Research on International Economic Relations and covering 1010 shoppers in four cities, indicated that only a quarter of Indian consumers were firmly opposed to chain stores. Many Indians want to see more Western-style supermarkets opened in the country, despite widespread fears that such chains would crowd out small, family run shops that form the foundation of India's retail market. According to this study, 53 percent of those asked approved of large chains, 24 percent were against and 23 percent had no opinion.

A Non-organized Retail National Policy

The hope that the opening of retail could follow in wake of the decision by India's ruling coalition to drop the country's Communist Party, as allies, looks far-fetched. The Communists claimed blocking foreign retailers as one of their great achievements. 'Big retailers like Wal-Mart say that retail provides jobs; but, what kind of jobs? Only people who are good in English and computers will get the job, not those who work in neighbouring stores", said Murli Manohar Joshi, the spokesperson of the Bhartiya Janta Party. "We support small shop owners against corporate retail". This party, like the Nationalist Party and the extreme left, suffered a serious setback during the last Parliamentary elections in May, 2009 which left power in the hands of the Congress Party to continue the pragmatic policy of openness for the next five years.

CARREFOUR IN INDIA

Since the late 1990s, the French group has been present in India with an office which buys clothes, mangoes and coconuts. This branch realizes a turnover of US 450 million dollars and has a growth rate of 15 percent per year. To prepare its implementation plan, the group asked India's largest consumer products company, Hindustan Unilever Ltd (HUL) to send some of its key executives to Carrefour S.A headquarters. The manufacturers of consumer goods had not waited for the big representatives of modern retailing to become established in India. L'Oreal has sold its shampoos since 1996 in small flasks and in bags, in 200,000 selling points. To better understand how the Group Carrefour functions, especially in terms of interactions with suppliers, HUL executives spent nine months at the Paris headquarters, according to a senior HUL executive who didn't want to be named, because he was not authorized to speak with the media.6

Having studied the Indian market for many months, the French company in 2007 opened an office in Gurgaon (in the national capital region of Delhi) with 50 people, and created two companies, wholly-owned subsidiaries of Carrefour:

* Carrefour Wholesale Cash and Carry India Pvt Ltd (Carrefour WC& C India Pvt Ltd), which is dedicated to the wholesale trade;

* Carrefour India Master Franchise Co Pvt Ltd which will choose an Indian company as partner to be able to create franchised shops under the Carrefour brand.

The world's second largest retailer by revenue, and the first worldwide franchiser has confirmed that it remains committed to entering both the wholesale and consumer retail sectors. BenoÎt Flahault, Executive Manager for Carrefour in India, said he hoped to sign a franchise deal with a local firm. The retailer's reiteration of its interest comes on the back of failed talks with several potential partners over the last few years. Carrefour has had talks with Bharti, the Wadia Group7 and real estate developer MGF, among other companies; however, no firm plans have emerged. The company is delaying its decision, until it finds the right partner. Alain Level refused to comment, saying: "I cannot comment on anything, as nothing is happening at our end."

POSSIBLE THEMES FOR DISCUSSION

(1) Possible themes for discussion:

* The international trade evolution

* The development strategies of large retail chains

* The trend towards harmonisation of these strategies

* Etc.

QUESTIONS

1. What external factors might affect the development of Carrefour in the Indian market?

2. What is the strategic aim of Carrefour on the Indian market?

3. What strategies does Carrefour use to achieve its strategic aims?

4. What are Carrefour's strengths and weaknesses?

5. What kind of recommendations would help Carrefour to achieve its strategic objectives?

Subject: Supermarkets; Superstores; Opportunity; Competition; Case studies

Location: India

Company / organization: Name: Carrefour SA; NAICS: 445110

Classification: 9110: Company specific; 8390: Retailing industry; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 69-77

Number of pages: 9

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600072

Document URL: http://search.proquest.com/docview/745600072?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 26 of 100

SECTION 2. FOCUS ON DIVERSIFICATION, ACQUISITION, NEW VENTURES - Chapter 7. Odyssey in Calcutta: A Mystery Unsolved

Author: Kar, Ashutosh; Kundu, Sudip

ProQuest document link

Abstract:

Deccan Chronicle Holdings Limited (DCHL), the publishers of Deccan Chronicle in September 2005 approved the acquisition of the south based retail chain Odyssey India Limited. Odyssey came with a specialty format, having introduced affluent product lines ranging from books to music, leisure, games, gifts etc. The success stories in all the 13 cities, mostly in the lush, sultry South, resulted in the rapid entry to the so called culture capital in July 2008. Odyssey launched one of the large format retail stores in South Calcutta with coverage of nearly 30000 square feet. In its attempts to redefine leisure shopping experience for Calcutta's people, they offered world-class ambience for undisturbed and relaxed shopping. A combination of expansion plans going wrong, high rentals and dipping spends made Mission Calcutta impossible for Odyssey. Within 10 months of commencement, Odyssey closed down on 10 May 2009. What went wrong in such haste. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Odyssey, a leisure chain store was started in 1995 with an area of 3,500 square feet in Adyar located in the southern suburb of Chennai. It slowly expanded its operations in the south and many parts of central and eastern India. In September 2005, Deccan Chronicle Holdings Limited (DCHL), the publishers of Deccan Chronicle approved the acquisition of the south based retail chain- Odyssey India Limited. The company was known as Heritage Books Private Limited, and later changed to Odyssey India Private Limited. In 2003-2004 it became a public limited company. The product profile of the company ranges from books, music, movies, toys, stationery, gifts and cards. It is predominantly a book store giving customers a wide range on subjects from popular fiction, non- fiction, computing, health, management, travel, art and architecture and children's books apart from others. In the children's section there is a wide variety of fiction, fairy tales, work books, encyclopedia, etc.

The company has maintained a good mix of products to satisfy customers' requirements. They try to change themselves with the ever changing needs of customers. When CDs splurged the music industry, the company shifted its product base from cassettes to CDs, stocking more CDs than cassettes. In recent years, the company changed its store design concept to bring in a contemporary feel and enhance brand visibility. The sale of books accounted for nearly 40 percent of the company's revenue. The rest comes from other segments like toys, music, movies, stationery etc. The company believes that their competitive strength lies in their strong position in the Indian retail market. Their uniqueness lies in their store design concept, strong and experienced professional managers, strong HR team, operational team and motivated work force and last but not the least the existence of strong cohesion and bonding among the employees.

CORE COMPETENCIES

By 2002, Odyssey established itself as the largest book retail chain in India, expanding its reach Vashi to Hyderabad, Vashi and Trichy. What made it stand apart from competitors was the quality of service delivered and the benchmarks set in customer service. Ensuring user friendly designed stores with an aesthetic feel, adequate sitting area and enhanced browsing time resulted in properly benchmarking Odyssey from its competitors. It created a children friendly environment with separate gifts and toys section, spacious reading sections for book lovers and listening post with sitting arrangements for music lovers. The new format includes Café Odyssey, a "slow food" theme restaurant catering to customer needs of relaxation with books and music, providing a holistic experience than just the food. The seven core categories include books, music, toys, cards, gifts, stationary and multimedia. The business strategy includes high growth coupled with optimum planning and segmenting the consumer group into Section A and A+ based on the hierarchy of disposable income which resulted in positioning themselves in the UP market locations of cities. Over the years, the company has developed considerable loyalty from customers and also built a strong relationship with some of the leading suppliers and manufacturers in each of the product categories. Odyssey's internal resources include an experienced team of professionals who have strong footholds in analyzing market trends to conversions. Recruitment of these professionals is in accordance with their specialized areas in retail business which has resulted in developing a strong management team with very low employee turnover.

MAPPING OF THE INTERNAL AND EXTERNAL ENVIRONMENT

Internal Environment

Product mix synergy which ensures meeting customer demand at regular intervals is one of the success stories of Odyssey. It is a joint responsibility of the merchandising team and the operations department which ensures satisfying the diversified and manifold demand of customers. The mix is dependent on accurately predicting the demand, class of the market and availability of retail space. Secondly, Odyssey's product mix also comprises of international goods who base their products on trends, fashion and historical data. Moreover, the company is dependent on too many distributors and importers largely belonging to the unorganized sector for sourcing products from foreign publishers and foreign brands. Any mismatch on their part in product design would affect sales volume and consequently revenue. Odyssey's product line consists of lifestyle products which include watches, jewellery and perfumes mostly driven by current trends and novelty and these parameters cannot be quantified or benchmarked. Seasonality, shrinkage and shorter product life cycles are matters of concern. Consumer preference is susceptible to change with changing trends and service level expectations and any let down in forecasting would lead to huge inventory build-up and thereby higher markdown and thus lower margins in order to clear such inventory. Thus success depends on ability to forecast, anticipate and respond to changing consumer preferences with respect to time. Success is also dependent on adhering to the norms and principles mentioned in the Standard Operating Procedures (SOP) and optimizing supply chain management principles which lead to availability of merchandise within the stipulated time, lowering lead time, logistics costs and regular shelf replenishment. Odyssey caters to the needs of the higher income customer segment, retailing lifestyle products and leisure merchandise; any change in the economic scenario of the market would hit them hard, because an economic downturn has adverse effects on disposable income and consequently consumers spending capacity. Moreover, growing competition from domestic and international players would adversely affect growth opportunity in the coming years. The retail industry has the highest attrition rate which is a challenge to Odyssey to retain their management team in such an economic scenario where other service providers are coming up. The business plan of opening up new stores and renovating existing ones needs substantial capital and additional financing in the form of debt / equity to meet requirements and together with this they also require regulatory approvals for their expansion plans.

External Environment

Odyssey's success will always depend on customer's footfalls, choice of location of the store taking into account their segmentation of customers and positioning strategies. Factors like regional condition, social class and government regulations also becomes an important factor. It is possible that earthquakes, cyclones, floods and other natural disasters, particularly those that directly affect the areas in which Odyssey's outlets are located, could result in substantial damage on both operations and finance. The Indian political scenario with a stable government and role of FII and the existence of global economic and political factors play a crucial role in shaping the external environment. These factors include interest rates, rates of economic growth, fiscal and monetary policies, inflation, deflation, consumer credit availability, consumers debt level, tax rates, foreign currency fluctuations, unemployment trends, terrorists threats and activities, worldwide military and domestic disturbances, conflicts and other events that influence consumer confidence, spending and tourism. Retailers also have apprehensions of the co-existence of Value Added tax (VAT) and Maximum Retail Price (MRP). Multiplicity of laws and regulations has impacted the growth of organized retail and regular agitation and violence by the unorganized sector of not allowing access to the organized sector only because they fear for their survival.

EMPLOYEE MANAGEMENT AND LEADERSHIP

Odyssey has professional managers who have vast experience. They analyze market trends properly and apply forecasting techniques to cope with the ever changing needs of customers. They design stores to enhance customer satisfaction. The operations team which manages the stores has a clear understanding of customers and provide the right products at the right time leading to customer satisfaction. These practices have enhanced more walk- ins into the stores. Company policy attracts talent, nurtures them and gives them scope of improvement. Proper training and potential appraisal is the key to success. The company has a very low turnover ratio which ensures stability. Odyssey believes in customers' satisfaction. The employees are treated as internal customers. The employees believe that end customers' satisfaction can be achieved by satisfying internal customers. The leadership is democratic in style where employees' opinions are taken into account before implementing any policy. Hiring of employees is being done from reputed management institutes. Employees are being provided with good compensation packages. The HR department works to create a positive environment to enhance employee motivation. Employees are given proper recognition. The career path of the employees is clear to them. The company supports all employees to achieve new heights so that the employees as well as the company prosper simultaneously.

Retail Scenario in Kolkata

"Kolkata has been very successful in franchising in the services sector but has been consistently gaining ground in apparel and food and beverages too. Franchising alone has seen a 30-35 per cent growth in the city last year." (Business Standard, June 19th 2009, Kolkata) - Sachin Marya of Franchise India.

The overwhelming success of the retail business pioneered by Mr. Kishore Biyani's Future Group in Kolkata led to confidence building for the rest of the organised players, resulting in a bullish outlook for places in Eastern India, particularly Kolkata. With the growth of retail chains like Pantaloons (departmental) and Big Bazaar (hypermarket), Kolkata has begun to see movement in the retail market and may witness a welcome spurt in shop-stops in the next few years, provided franchisees get their brands and retail destination right. Organised players like Aditya Birla Retail Ltd (ABRL) with their brand MORE, RPG with SPENCER and Reliance with their brand FRESH, etc, have already penetrated the Kolkata market. The South City Project, the largest shopping mall in Eastern India has shown revolutionary changes making Kolkata a destination for organised retail. In terms of supply, two more new malls - Lake City Mall and City Centre II - are scheduled to open in the near future. This will be followed by Riverside Mall later on. With the advent of an economic slowdown there has been a major correction in retail rentals which has dropped by approximately 25 percent during the last few months; in fact the retail rental scenario is now almost stabilized. Slowly and steadily new brands are setting up stores in Kolkata; South Kolkata is the most preferred retail expansion destination at the moment. There has been a shift in consumer sentiment and footfalls in retail joints have increased by at least 20-30 percent which in turn has increased their conversion ratios.

Books and Music Retailing

Reading habits are increasingly becoming popular with spending on books increasing to a considerable extent. Organised book retailing is having 7 percent share while text and curriculum books have contributed nearly 50 percent of the total sales. This is being considered as an emerging sector. Organised book retailing is a new endeavour. The new age retailers are bringing in revolutionary changes in book retailing in India. This segment is expected to grow at an annual rate of 15 percent. The new book retailers are changing the atmosphere of book retailing. They used to provide customers with an "experience". Now retailing infuses a sense of totality by keeping music, gifts, and stationery along with books. Modern bookstores also have a café and ambience of true aesthetic sense. They always try to do something innovative to attract customers. The large base of English speaking population in India has contributed to the impressive performance of bookstores. Interaction with authors, or favorite personalities and café inside a bookstore has created immense interest among readers to visit bookstores. The value added services like home delivery and online retailing are gaining popularity day by day. In the early 90's the music market was dominated by movie and devotional music. After the advent of television, non-film music channels, non-film videos created interest in the minds of consumers. The digitization of music tremendously affected the mind of customers. With the advent of MP3 format, the music industry is converting from analog form to digital.

Inception in Kolkata

After the success stories in all the 13 cities, mostly in south India, Odyssey made a rapid entry in the culture capital in July 2008. Odyssey came with its 31st store on Prince Anwar Shah Road in south Kolkata. It came up with a 30,000 square feet store in the Merlin Residency II in Prince Anwar Shah Road. Books form the core segment of the three level store. The ground floor attracts book worm people. Besides having core titles including bestsellers, travel, history, art, Indian culture, self-development and management books, Odyssey has a wide range of vernacular works. In its attempt to redefine leisure shopping experience for Calcutta's people, they offered world-class ambience for undisturbed and relaxed shopping experiences. Also on the cards were plans to open two more stores in the culture capital- one at Gariahat and another at Central Avenue and ten more express formats in Kolkata.

"Died in its infancy"-Odyssey Kolkata Disappoints: "It's rare to find a really good bookstore chain in cities these days and it did not come as a shock to me but I felt cheated, I was deprived of a bookstore near my house." (Article blog - mabaker.sulekha.com, June 8, 2009)- A city of booklovers.

Incidents have shaken one's faith in Odyssey Kolkata at least when it got the news of closing down of the book store on 10 May, 2009. Within just 10 months of its opening, the largest book retail store went from boom to bust. This resulted in the downfall of their 31st outlet. The mission of opening up two more stores - one at Gariahat and the second at C R Avenue and ten more express formats in Kolkata remained a dream which never came true.

What went wrong?

Subject: Retailing industry; Case studies; Shutdowns

Location: Calcutta India

Company / organization: Name: Odyssey India Ltd; NAICS: 452990

Classification: 9110: Company specific; 8390: Retailing industry; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 78-82

Number of pages: 5

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745600008

Document URL: http://search.proquest.com/docview/745600008?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 27 of 100

SECTION 2. FOCUS ON DIVERSIFICATION, ACQUISITION, NEW VENTURES - Chapter 8. Business Strategy Case Study: Tricky Time for Tata Motors

Author: Lynch, Richard

ProQuest document link

Abstract:

In the two years to 2009, Tata Motors - one of India's leading car and truck companies - made two dramatic strategic moves: first, a major world-class acquisition and, second, the launch of a revolutionary new car. But, both were made against the backdrop of major strategic problems in the world car industry. This case explores what then turned out to be a tricky time for Tata. [PUBLICATION ABSTRACT]

Full text:

TWO DRAMATIC NEW STRATEGIES

In 2008, Tata Motors acquired two world car brands and their associated assets - Jaguar and Land Rover (JLR) - from the struggling US car company, Ford Motors, for US$ 2.3 Billion. Commenting on the occasion, the company said, "This is a momentous time for all of us at Tata Motors. Jaguar and Land Rover are two iconic British brands with worldwide prospects. We are looking forward to extending our full support to the Jaguar and Land Rover team to realise their competitive potential."

One year later, the same takeover was facing major problems. Sales at JLR were down 32 per cent compared to the previous year, and the new purchase made a net loss of nearly US$ 450 million in the ten months since its purchase. Mr Ratan Tata, Chairman of Tata Motors commented in May 2009, "If one had known there was going to be a meltdown, then yes [Tata went too far] but nobody knew. Both the acquisitions were made, I would say, at an inopportune time in the sense that they were near the top of the market."

Around the same time as Tata Motors acquired JLR, the company also impressed the world with the launch of India's cheapest new car model, called the Nano. Priced at around only US$ 2,000 (One Lakh Indian Rupees), the new car design was aimed at the large, low- priced car market in both India and other developing countries. The Nano embodied new innovative manufacturing strategies and some neat, cost-saving features. Coupled with ow Indian labour manufacturing costs, the Nano was designed to be the world's lowest- priced car, while at the same time, delivering profits to Tata. But the new model was delayed by a major dispute over land for its manufacturing plant in West Bengal. Later in 2008, Tata moved the plant to the state of Gujarat. All this delayed the Nano launch from October 2008 to July 2009 with a consequent loss of sales and profits.

While these two strategies were being played out, world car markets took a severe downturn. Even the world's leading car company, Toyota, moved from profit into loss. This case explores the strategic implications for Tata Motors. Where does the company go from here? Does it expand the Nano outside India? How does it support JLR? Does it invest in other areas of the business where it has major strengths - like trucks and buses? What are its next strategic moves?

To explore these questions, the case has the following sections:

* World car markets - the strategic context

* Indian car and truck markets: Tata and its competitors

* Tata Motors: its resources and capabilities

* Conclusions: where now for Tata?

WORLD CAR MARKETS - THE STRATEGIC CONTEXT

In 2007, world market demand amounted to 56 million passenger cars, with the global market being worth around US$ 1,200 billion in monetary terms. However, the market went into significant decline in 2008/09 dropping up to 33 per cent in many western markets - see Table 1. Such a decline had a dramatic effect on car company profits because economies of scale were (and are) important in the industry.

The profit problems were made worse because the supply of cars had been much greater than the demand for cars, for many years, in the world industry. For example, even in the 'profitable' year of 2007, the leading companies possessed global production capacity for around 73 million cars compared with world wide customer demand of around 56 million cars. Inevitably, this excess production capacity problem became more acute when the world experienced a major economic downturn in 2008/09.

A further difficulty was the importance of car companies to the overall industrial economic health of many nations, especially in Europe and the USA. This meant that national governments were willing to support the strategies of their own national car companies and related car component companies at the expense of other foreign companies. They did this by various grants and import restrictions. Three examples:

* The largest German company, Volkswagen, was part-owned by one of the German states with consequently a strong interest in maintaining production and employment.

* The three largest US car companies were offered massive amounts of US government funds when they became unprofitable in 2008/09.

* The Indian government protected its own national car companies - like Tata Motors - by taxing foreign-made cars heavily and placing a large minimum investment barrier on any foreign car company wishing to set up a factory in India.

Within this difficult market background, there were three further major strategic challenges facing all car companies, especially those operating internationally:

1. Profitability was under severe pressure from long-term high cost issues - like pension and health provisions made to former employees of the US car companies (called 'legacy costs' in the industry). These were not a major direct issue for Tata Motors itself, but were relevant to its new JLR acquisition.

2. Rising fuel costs made car ownership more expensive and therefore less attractive for many Western developed markets and other developing markets. Some larger car models - like those from JLR - were particularly hard hit with the need for massive new model and engine re-engineering.

3. Increased awareness of the environmental consequences of motoring in terms of pollution and scarce resources had begun to impact on car design. Governments were bringing out new laws to enforce tougher car emission standards and better fuel economy. All motor manufacturers, including Tata Motors, were therefore exploring new low-emission car engines. For example, Tata had acquired shares in a Norwegian company that was developing an electric car engine.

Essentially, these issues led the world's leading car companies to seek radically new car designs. In addition, basic re-structuring of car companies was beginning to take place globally across the industry to reduce production capacity and return to profitability. For example, the world's largest car company in 2007 - General Motors - was broken up in 2009 into a North American part, and a separate European part, with the latter being sold off at the time of writing this case.

In summary, reduced global demand, substantial model re-design and significant company re-structuring had put major financial pressures on the world's leading car companies in 2008/09.

Nevertheless, developing countries, like China and India, were experiencing continued car market growth. Part of the reason was that such countries had much lower penetration of car ownership - see Figure 1 - while at the same time, household incomes were increasing. However, such countries made up a small part of global demand than the developed nations - see Table 1. The USA and the European Union still accounted for around 60 per cent of the world market for cars in 2008, but this percentage was declining.

By 2009, the outcome of these pressures was still to work through fully into car company results. But the consequences were already evident: even the market leader, the Japanese company Toyota, made a loss in 2009. It was against this difficult background that Indian motor companies were developing the home market and seeking new export business.

The next section explores the market for passenger cars in India, but also covers the separate but related market for commercial vehicles - like trucks and buses. This latter market was not explored in the same depth as the market for passenger cars in the last two sections. But essentially, the market for buses and trucks has many similar characteristics to that for cars: excess production capacity, the need for more fuel efficiency, etc. However, each individual commercial vehicle carries a much higher price ticket than a passenger car. Hence, the truck market has a smaller number of such units and these are sold to business and government customers rather than to private customers.

INDIAN CAR AND TRUCK MARKETS: TATA AND ITS COMPETITORS

In 2008, the Indian home market for passenger cars was worth around US$ 7 billion at manufacturer's selling prices (MSP): this was small compared to the world market of around US$ 1,200 billion. However, world markets were in severe decline while the India market was growing at around 11 per cent per annum.

In 2008, the Indian market for commercial vehicles - trucks, lorries and buses - was worth around US $ 6 billion, but was growing more slowly at around 7 per cent per annum. Figure 2 shows the main trends.

Fortunately for Indian vehicle manufacturers, the home markets for both passenger cars and commercial vehicles were largely immune to the world market decline at that time. However, vehicle exports by Indian companies were badly affected with sales down at least 30 per cent. Nevertheless, the impact of such a decline was limited, because exports were a relatively small part of the sales of Indian companies - typically 10 to 15 per cent of sales.

These figures and comments do not take into account Tata Motors' acquisition of JLR described earlier in this case, which occurred later in 2008,nor the launch of the Nano which would only appear in the sales data for 2009.

Although the Indian car and truck markets are significant, they are small by world standards - especially considering the 1 billion size of India's population. Table 2 shows the world's leading car companies and position of India's leading vehicle companies in that context. Anyone who has been stuck in one of the many rush-hour traffic jams in Delhi or Mumbai (like the writer of this case) might be surprised by the low position of the leading Indian companies. But many Indians have been too poor to afford to buy a car. They have relied instead on cheaper motorcycles: India is the world's largest market for two-wheelers.

Foreign car companies were attracted to the Indian market for two reasons: first, existing car usage was lower than other countries suggesting significant growth potential; second, there was good evidence of steadily increasing wealth in India to support greater car ownership. In addition, the continued growth of the Indian economy coupled with the Indian government's investment in a better transport infrastructure - roads and bridges - also made Indian markets more attractive. The problem for such foreign companies during 2009 was the poor company profitability elsewhere in the world. This made it difficult for world car companies to invest in India short-term. But this could all change over time. As a first step, several foreign car companies were beginning to develop joint ventures with Indian motor manufacturers, Renault and Fiat being examples. Table 2 identifies other examples and more can be found on the websites of each company.

Importantly, when it comes to expansion strategies, the Chinese market may provide some lessons for India. The Chinese vehicle market has grown faster than India from two related strategies. First, the Chinese government itself has supported foreign companies entering the Chinese market. It has placed restrictions on the share ownership of Chinese car companies, but otherwise it has encouraged foreign entry. Second, Chinese vehicle companies themselves have embraced wholeheartedly the strategy of joint ventures - see Table 2 - to rapidly develop car production capacity of China. The result has been a more dynamic and open Chinese vehicle market than India.

Because of the Indian market for motor vehicles has enjoyed some protection in the past from the entry of world car companies, Tata Motors had only three major competitors in its home market in 2009. They were:

* Maruti Suzuki: this company was controlled by the Japanese company Suzuki and was the market leader in the passenger car segment in India. The company is explored further in the section that follows.

* Mahindra and Mahindra: this company has a major presence in a special segment of the Indian vehicle market - the Multi-Utility Vehicle sector (MUVs). These vehicles are larger than passenger cars and can either be used to transport passengers or commercial goods, depending on the precise configuration of the vehicle. Mahindra was market leader in MUVs with a share of around 50 per cent. It was also strong in the similar Indian 3-wheeled vehicle market. The MUV and 3-wheeler market sectors were larger in India than in many other countries. The MUV market had grown at five per cent between 2007 and 2008 but the 3-wheeler market declined. More generally, there were some doubts over future growth in these two sectors, partly because MUVs tend to have higher operating costs per unit carried than larger commercial vehicles like trucks and buses. Mahindra's strength in the MUV sector was therefore under threat from competitors that sold larger commercial vehicles such as Tata Motors. Nevertheless, Mahindra remained one of India's major transport companies with an additional strength in agricultural tractor production, where it was one of the world's leading companies.

* Hindustan Motors: this company tends to have a more specialist range of passenger cars, trucks and other commercial vehicles. It is the smallest of the four main Indian car companies and is owned by one of India's most famous family conglomerates, the Birla Group.

TATA MOTORS: ITS RESOURCES AND CAPABILITIES

Founded in 1954, Tata Motors forms a major part of one of India's most famous family conglomerates, the Tata Group. The company began as a manufacturer of commercial vehicles - trucks and buses - in association with the German company Daimler Benz. Daimler remains one of the world leaders in such vehicles but the link with Tata was soon broken. Tata then developed an independent strategy and no longer has any connection with the German company. Given the protected nature of both the Indian passenger car market as well as the truck market, Tata then branched from commercial vehicles into passenger cars in 1991. It launched a series of car models over the next few years into different segments of the passenger car market. Although, Tata Motors was able to build a dominant market share in the Indian commercial vehicle market, it did not manage to do the same in the Indian passenger car market up to 2009 - see Figure 3.

In 2009, Tata Motor's commercial vehicle operations were one of the major strengths of the company. It was the market leader with over 60 percent of the market in its home country India - see Figure 3. It had good relations both with the central Indian government and also with a number of the Indian state governments, all of whom were important customers for the large trucks and buses of this part of Tata's business. The commercial vehicle part was also strong throughout neighbouring countries, such as Nepal and Sri Lanka.

In addition, Tata has used its home strength to develop its worldwide operations. In 2004, it acquired the commercial vehicle operations of the Korean company, Daewoo. In 2005, Tata bought a minority stake in a Spanish commercial vehicle company, Hispano Carrocera. In 2006, it formed a joint venture with a Brazilian company, Marcopolo which has strengths in bus and coach manufacture. Tata also had developed commercial truck and bus building production capacity in Argentina and South Africa. However, it had very limited operations in the world's two leading commercial vehicle markets, North America and Europe.

Turning to the Indian passenger car market, Tata Motors has not been able to gain the same market dominance as it possessed in commercial vehicles up to the time of writing this case. Tata Motors has certainly attempted to increase its share of the Indian market over many years. In addition to its own designs, Tata has also developed a link with the Italian motor company, Fiat. Tata has launched some Fiat designs. In addition, Tata has also had access to Fiat's diesel engine technology - helpful with the increased pressures on greater fuel efficiency. In spite of all this activity, Tata's market share has typically hovered below 20 percent - see Figure 3 - for some years.

Owned by the Japanese car company Suzuki, the Indian company Maruti Suzuki has dominated the Indian passenger car market for some years with a share over 50 percent. Maruti has been better at developing models to suit the Indian market and also at other aspects of marketing. For example, Maruti set up a company to sell used vehicles some years earlier than Tata, which only followed in 2008. Equally, Maruti was an early leader in developing a strong chain of support garages and service stations - vital in the massive Indian subcontinent - and also in providing driving schools to help its customers learn to cope with India's demanding road traffic.

In 2009, Maruti announced a new car model with an engine capacity of 660ccs, compared with the Tata Nano's capacity of 639ccs. But, at the time of writing this case, Maruti had not yet announced a price that would allow it to compete with the rock-bottom Nano price. It was the Tata Motors model that had gained over 200,000 advance orders, not Maruti. But Maruti had greater economies of scale in the Indian passenger car market than Tata. Hence, Maruti had the potential to mount a competitive threat to the Nano at the time of writing this case.

After four years of development work, it might seem that the new Tata Nano might begin to eat into Maruti's dominant market share. However, Tata claimed that the main target of the Nano was not Maruti. The Nano was aimed at those Indian families who currently perch everyone on an over-laden motorcycle. Tata's objective was to expand the Indian passenger car market rather than attack a dominant competitor.

There was no doubt that the launch of the Nano had caught the imagination of the Indian nation. Such was the demand in the first year that Tata had to allocate its production by ballot. However, Tata will lack the production capacity to take full advantage of this strong demand for some years. The first Nano factory in Pune was planned to produce only 100,000 cars per year. Another newer factory in Gujarat would eventually produce 250,000 Nano cars per year, but would not come on stream until 2011.

By 2011, Maruti itself would have the opportunity to develop its own model, though it had not made any specific announcement at the time of writing this case. Importantly also, one of India's leading motorcycle companies - Bajaj - announced that it was developing a direct competitor to the Nano in cooperation with the French car company, Renault. This was targeted for launch in 2011. Tata Motors was not going to have an easy ride with the Nano, in spite of its early success and widely praised design.

According to some reports, Tata Motors was also designing a European version of the Nano for display at the Geneva Motor Trade Fair in late 2009. Other reports were also circulating that Tata was planning to export the Nano to other developing countries. However, there was some doubt surrounding such stories given the lack of production capacity to satisfy even the Indian home market.

Around the same time as the announcement about the Nano, Tata Motors acquired the Jaguar Land Rover (JLR) company from the US company Ford Motors for US$ 2.3 billion. There were some problems over raising the finance for the JLR deal in 2008 but Tata was able to resolve these in 2009. Financing the JLR acquisition was not the main strategic issue at Tata Motors, though finance was expected to remain tight for Tata Motors in more general terms for the next few years.

JLR's passenger cars were positioned in the up-market end of world cars with both high prices and high performance characteristics: Jaguar in luxury sports cars and Land Rover in off-road sports utility vehicles (SUVs). Some Land Rover models were rugged and simple while others were more luxurious. The JLR brands were pitched against heavy world competition from other companies such as BMW, Mercedes Benz and Lexus (the luxury brand from Toyota). The deal with Ford also included continuing support from the US company in engine development - essential given the world pressures to produce lower fuel emissions and better fuel economy. JLR itself had a major programme of new models coming for launch over the period to 2012. Many of such models were designed both to be luxurious but also to fit with the increasingly strict fuel efficiency and new higher exhaust emission standards being set in North America and Europe.

Exploring its new acquisition in more depth, Tata Motors knew that JLR had some famous global brand names and a strong international distribution network. The headquarters were in the UK with three main UK plants, 14,500 employees and a major research facility. However, since its acquisition by Tata, JLR sales has dropped from 246,000 vehicles in 2007/08 to 167,000 vehicles in 2008/09 and five hundred UK employees had been made redundant. Nevertheless, Tata was able to finance its purchase of JLR on commercial terms from banks without recourse to any funds from the UK government. This suggested that the world's lending institutions were confident about the ability of Tata to make a commercial success of JLR.

From the outset, Tata Motors decided to manage its new acquisition separately from the Indian part - presumably for reasons of history, market positioning and resources. But this had a downside that Tata would not be able to share JLR knowledge so easily across the Tata group.

Mainly due to the decline in world markets in 2008/09, JLR made a loss in that year according to preliminary reports at the time of writing this case. Such an outcome, coupled with the difficulties of launching the Nano, is too early to be reflected in the overall performance of Tata Motors shown in Figure 4. The historical data shows that Tata had a poor profit record in the years 1999-2002 but grew successfully since that time up to 2008.

The main strategic challenges facing Tata Motors in 2009 are briefly outlined in the next section.

CONCLUSIONS: WHERE NOW FOR TATA?

From the perspective of global strategy, Tata Motors was in a strong position. It held a significant part of one of the world's growing passenger car markets, India. Yet Tata was not so large - unlike perhaps Maruti Suzuki - that it could simply grow by itself. Several of the world's leading car companies like Volkswagen and Toyota were examining opportunities in the Indian market following successful joint ventures in another large and growing market, China. Even though Tata was engaged with the Nano, there were large segments of the Indian car market where its leading competitor was much larger. Perhaps a joint venture with a foreign competitor would prove attractive for Tata?

Equally, although Tata had achieved major success with the Nano, where does it go from here? Was it really going to launch into the highly competitive European car market? Perhaps its next step should be to launch into other developing markets like those in other parts of Asia, parts of the Middle East and Africa? Perhaps even into South America?

And then there was the opportunity and the problem with its new acquisition, JLR. What should its strategy be for this part of the company? Should it continue with a stand-alone strategy? What strategies were needed to return the subsidiary to profitability? Perhaps it was a mistake to have acquired the company in 2008 and it should be divested to another company? Perhaps this was too pessimistic a perspective with JLR having strong growth prospects over the next ten years and delivering a competitive resource that no previous Indian car company had ever previously possessed - two major global brands?

Although the Indian commercial vehicle market was growing more slowly, there was also substantial growth potential in its range of trucks and buses. Moreover, this was one area where Tata was the Asian market leader. Perhaps it should pursue this route more vigorously? Perhaps it should re-build its former link with another of the world's leading commercial vehicle producers, Daimler-Benz, with a view to strengthening its world franchise? Perhaps Tata should continue to link up with other commercial vehicle manufacturers around the world but on a smaller scale? Would this fully exploit its knowledge and skills in commercial vehicles?

CASE QUESTIONS

1. From the perspective of Tata Motors, what are the main elements that you would highlight in a strategic environmental analysis? And what are Tata's main competitive resources and capabilities?

2. What are the implications of your analysis for Tata's future strategy? Does it continue to pursue all its current areas of growth? Perhaps it needs to be more selective in terms of its growth opportunities? Are there any that you would put first? Are there any that you would drop?

3. Are there any lessons that other companies can draw from Tata Motors' strategies in recent years? Both lessons on strategies where Tata has done well? And others where the company has done badly?

Subject: Case studies; Automobile industry; Strategic management

Location: India

Company / organization: Name: Tata Motors Ltd; NAICS: 336111

Classification: 2310: Planning; 8680: Transportation equipment industry; 9179: Asia & the Pacific; 9110: Company specific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 83-95

Number of pages: 13

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745600141

Document URL: http://search.proquest.com/docview/745600141?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 28 of 100

SECTION 2. FOCUS ON DIVERSIFICATION, ACQUISITION, NEW VENTURES - Chapter 9. Diversification and Financial Performances: The Case of Moser Baer India Ltd.

Author: Bhattacharyya, Subhajit

ProQuest document link

Abstract:

Moser Baer India is the second largest provider of optical storage devices like CDs and DVDs in the world. Since its inception in 1983 in collaboration with Maruzen Corporation, Japan and Moser Baer Sumiswald, Switzerland, the focus in the business model of Moser Baer India was primarily on storage devices beginning with magnetic storage device like 5.253 floppy diskette upto the planned launch of high end optical storage device like Blu-Ray Disc in 2010. The company has also ventured into other business territories of late like solar photovoltaic business, entertainment, IT peripherals and consumer electronics. However, the performance of the company seems to have been affected because of such diversification strategies as shown by its recent financial performances, as also its stock market performances. The present case attempts to document and analyse any possible correlation between the two in case of Moser Baer India. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

"The Sun supplies 10,000 times the amount of energy needed every year on earth. Technological breakthroughs are fast lowering the cost of harnessing and distributing this energy," said Mr. Ratul Puri, Executive Director, Moser Baer India Ltd. (MBIL), as reported in an article in a national daily.1 Certainly this has been the fundamental reason for MBIL to start thinking about diversifying into the solar photovoltaic business in the very early years of the 21st century. As a follow up action, the company made a total investment of about US $175 million in the business, beginning 2006, till the end of the financial year of 2008-09. As reported in the said article, the company originally had a plan to invest about US $1.5 billion in the manufacturing facility in Chennai with the hope of generating 1GW (1000 MW) of electricity by end of the year 2010. But investment decisions were revised in due course in the context of, among other issues, the global economic uncertainty of late 2008.

MBIL claims to be the second largest supplier in the world of optical storage devices like CDs/DVDs commanding nearly twenty per cent of the world market share.2 Its major competitors in the international market are RITEK and CMC, both based in Taiwan. Established in 1983 in technical collaboration with Maruzen Corporation, Japan and Moser Baer Sumiswald, Switzerland, the company started off with the business of manufacturing magnetic storage device like 5.25-inch floppy diskettes and thereafter graduated to manufacturing 3.5-inch diskettes. Almost all of its revenues were earned through exports only. The domestic market for floppy diskettes was too small for the survival or growth of the company. In fact, Moser Baer started giving importance to the Indian market only as late as the early period of this decade, i.e. 2003, to be precise, when, for the first time, it launched the 'Moser Baer' label in India. Prior to that, it exported a large share of its production to the 12 big OEM customers worldwide. Though the share is consistently falling off lately, after achieving a high of about 93 percent in 2000-01, even today, about 70 per cent of its revenues come from exports (see Exhibit 1). It forayed into the business of manufacturing optical storage devices in 1999. Presently the company is manufacturing Recordable Compact Discs (CDR), Rewritable Compact Discs (CD-RW), Recordable Digital Versatile Discs (DVDR), Rewritable Digital Versatile Discs (DVD-RW), High Definition DVDs (HD-DVD) and DVD-ROMs. It has a plan to launch Blu-ray Disk in 2010. Eventually, Moser Baer emerged as a leader in the Indian market as well in this particular segment, thanks to an outstanding performance by the company in the domestic market during the period (see Exhibit 2).

A pioneer among globalizing Indian firms, Moser Baer with an employee base of over 8,000 people serves over 82 countries through its six marketing offices in India, the USA and Europe. The VISION of the company has changed over the period from being 'a global leader in manufacturing of high technology products' to being an entity 'touching every life across the globe through high technology products and services'. A sense of social usefulness of its existence is entrenched in this change in 'VISION' that highlights the business philosophy of the company. Moser Baer derives its competitive advantage through mass manufacturing in India, rapid development of technology, products and services and through leveraging its relationships with key customers. It received ISO 9002 certification in 1998 and its manufacturing plants received ISO 14001 and OHSAS, 18001 in 2005. The achievements of the company since 2003 are listed in Exhibit 3.

The optical storage industry in the world is characterized by high entry barriers. Over two-thirds of the world's capacity is concentrated in Taiwan and Japan with to top five holding over 80 per cent of this capacity. Thus survival in this kind of industry structure requires capabilities to exploit economies of scale by having large capacity, fast pace of technological innovations for catching up, and possibly for leap-frogging, and efficient manufacturing and distribution processes. Moser Baer has, over a period, built up all of these capabilities through strategic choice of plant location, human resources and supplier tie-ups. Its manufacturing facility in Greater Noida, near New Delhi, the national capital of India alone is the largest manufacturing facility in the world with an installed capacity of 1.4 billion units of CDR/RW, DVDR/RW, DVD-ROMs. Its combined capacity of over three billion units, the technology used, and the advantages of comparative low employee costs in India facilitate Moser Baer in being the lowest cost producer in the world, a fact that helped the company being the second largest supplier of optical storage devices in the world. Of course, high product quality, professionalism in the proprietary process and delivery of promised standards helped the company establish a strong relationship with its key customers.

DIVERSIFICATION AT MOSER BAER

On the foundation of its success in optical storage devices, Moser Baer decided to diversify into three other fields of business. Realising the tremendous potential in the solar photovoltaic business, it set up a wholly owned subsidiary 'Moser Baer Photovoltaic Ltd.' in 2005, dedicated to generating solar power in the country. This fulfils two of the most important social objectives of doing business today. First is the environmental concern. Solar power, being Green in nature, will help minimize carbon emission levels in the country by lowering dependence on fossil fuel based power generation systems to meet the ever growing needs of energy. The second is its renewability characteristics. Given the fact that nature has a defined level of reserves of fossil fuel, fast depletion of these reserves to meet the present high demand of energy will leave insufficient resources to meet future energy demand. Despite the fact that the technological breakthrough in solar power generation system to convert the entire energy supplied by the Sun to the Earth - 10,000 times the Earth's yearly energy requirements, as pointed out by Mr. Puri, is yet to be achieved, whatever portion of today's energy needs are fulfilled by solar power will help us preserve as much fossil fuel for meeting future energy needs.

The two other businesses that Moser Baer entered into were the Indian home video market in 2006 and PC peripherals market in 2007. This rather rapid move of diversification into three different kinds of businesses in a short span of time of just three years may give rise to a question as to whether such a move was strategically correct. The answer is very much open to debate. The following few paragraphs deliberate on the two major businesses of MBIL, i.e. optical storage devices and solar photovoltaic cells manufacturing. The other two are not described here as the combined contribution of these two businesses is less than 10 per cent of the total business of the group.

OPTICAL STORAGE DEVICES

Moser Baer manufactures the entire gamut of optical storage devices as mentioned earlier. The company is known for its innovation and product development prowess. A team of 75 scientists and engineers in the R&D lab endeavours to keep the company ahead of competition in technological innovation. The company already has over 40 patents in the field of optical media. It has an efficient real-time process control system with advanced SPC tools for tighter process windows and company-wide Six Sigma initiatives. In addition to this, a number of acquisitions of technological companies in India and abroad have given it an added advantage. These include European Optic Media Technology GmbH in Germany, OM&T B. V. in the Netherlands, Omega Optical Media Technologies in Slovakia and others.

The latest generation of optical storage devices x is the Blu-ray Discs. With its high density capabilities, ease of use and durability, Blu-ray Discs would emerge as the most widely used of such devices. However, they may also face competition from the next generation technologies such as holographic storage or magneto-optical recording. Princeton University Center for Network Science and Applications (CNSA) in collaboration with Access Optical Networks Inc. (AON) is in the process of commercially launching in 2010 non-volatile SAS/SATA connected 2U form factor holographic data storage product with specifications that include 1.2 Tera Byte (TB) density and 1 Giga bit per second (Gb/s) random read/re-write capabilities.3 IDC, a leading worldwide organization for research and consultancy services in the technology industry, however forecasts that, despite the advent of advanced optical storage devices like HD-DVD and Blu-ray discs or holographic storage devices, DVD would continue to dominate the market until 2012 as aggressive volume manufacturers would continue to drive down the price. It also forecasts that more than 100 million Blu-ray Discs would be shipped worldwide in 2011.4 One reason for the possible dominance of DVDs could be the steep price of Blu-ray DVD recorders as compared to generic DVD recorders.

Moser Baer remains a top rung supplier of HD-DVD in the world market in addition to its bread-and-butter products like generic CDs and DVDs. In view of the possible obsolescence of this technology in the face of competition from Blu-ray Discs,5 the latter could be a key growth driver for the company in the long run. Moser Baer is the only non- Japanese company to develop its own technology for manufacturing Blu-ray Discs and is very much on track for its planned launch in 2010.

SOLAR PHOTOVOLTAIC BUSINESS

The movement to introduce and expand renewable energy is gaining momentum worldwide resulting in skyrocketing demand for photovoltaic power systems of late. Leading in demand are countries in the southern part of Europe. Thus over 400 solar photovoltaic companies in the world today look up to this part of the world for success in their business. The efficiency and cost of supplying solar power in a particular region depends on the amount of sunshine the region gets. In terms of feed-in tariff, grid parity, where the cost of solar electricity equals the cost of electricity from conventional sources like fossil fuel etc., will be achieved much too soon in a place like California, USA, which receives sunshine of greater intensity as compared to a place like, say, France. Of course, the other determinant factor behind grid parity is the relative price of energy from these two sources. For example, the electricity tariff in California is much higher than in France. Thus, lowering the cost of supply of energy through solar photovoltaic system to a large extent would be enough to achieve grid parity in California than what is required in France. In this respect, India has good potential for business in terms of intensity of sunshine, but not so good potential in certain other terms, which will be explained shortly.

MBIL, under the aegis of its wholly owned subsidiary Moser Baer Photovoltaic (MBPV), has set up 80 MW, state-of-the-art, fully automated in-line crystalline silicon cell manufacturing facility, 80 MW module manufacturing facility and a 200 MW amorphous silicon thin film module capacity capable of producing the world's largest non-flexible thin film modules.6 There is a plan to expand the crystalline silicon cell manufacturing facility to 240 MW in the near future. This thin-film technology of generating solar power has an advantage of low supply constraint, higher efficiency and high product stability. With overall costs being low, it may be possible to achieve grid parity in a shorter span of time. The other type of photovoltaic technology is concentrating photovoltaic (CPV). This technology should ideally be used at a place with high levels of sunshine. CPV uses mirrors and/or lenses to focus sunlight on a small piece of semiconductor material and uses a fraction of the poly-silicon to produce electricity.7 MBPV has tied up with Solfocus, a US based developer of CPV technology in partnership with the world renowned Palo Alto Research Centre, California, for high concentration CPV modules and with Solaria, also a US based technology company for lower concentration CPV modules. In addition to this, strategic tie ups with Stion Corporation in Silicon Valley, California, for producing extremely lowcost solar power generating surfaces, and with Soravaiue, Proizvodnja d.d of Slovenia for low-cost solar grade silicon would certainly give MBPV an advantage in its photovoltaic business. As per MBIL estimates, grid parity can be achieved when cost of solar power falls to US $2.5 per watt over a period of 10 years.8 However, whether even this cost will be competitive enough in the world market is a moot point, particularly when a Chinese company has vowed to bring down this cost to the sub-dollar level in 2010 itself. Lynn Sha, Vice President of the Chinese manufacturer QS Solar said that the objective of his company would be to reach a selling price of solar module of US $1 per watt in 2010 itself thereby making solar energy available at a cost cheaper than even that of electricity from conventional sources, as reported in an article published in Solarplaza.com, a Rotterdam, Netherlands, based independent global platform for knowledge, trade and events for the photovoltaic solar energy industry.9

India started its endeavour to convert the huge amounts of energy thrown at us by the Sun, or only a miniscule part of it, into electricity way back in the mid '70s. However, the solar power business primarily was that of assembly only, where major players like Central Electronics, BHEL etc. used to import mono-crystalline photovoltaic cells and assemble them at the site to generate solar power. There was no manufacturer of such cells in India. MBPV set up its manufacturing plant in 2005. The Government of India, like governments of other countries, provided significant support for setting up such a solar power system. The supports, which are offered even today, include 100 per cent depreciation in the first year of installation of the systems, no excise duty on manufacture of cells and modules, low import tariff for several raw materials and components, soft loans to users, intermediaries and manufacturers. However, the feed-in tariff proposed by the government that is of US $0.4 per kWh for 10 years seems to be not very encouraging. The companies are of the view that such limited support is not enough for driving the growth in demand for solar energy in the country.

India perennially witnesses power shortages of a significant level, which on an average ore about 20 per cent during peak demand period, every year. This surely affects economic activities in the country. The fact that despite such power shortages, India is still registering the second highest growth rate in the world forces us to think whether the economy is growing to its true potential. But the challenges are many before the economy grows to its true potential. First is the energy cost. Given the fact that a large portion of its power generation system is fossil-fuel based, the cost of generating power through this technology is certain to go up as we deplete more and more fossil fuel reserves. Solar power could be a better alternative if one looks at its price stability, negligible operating and maintenance costs and a minimum life of about 25 years. However, the main issue in this technology is the initial cost, which, from a users' point of view, is substantially high compared to conventional sources. In a country like India, where a large portion of the users are in the subsidized category like domestic users, farmers and other entities in rural areas, more so when we target far-flung regions of the country inhabited mostly by economically weaker segments of the population, where solar energy could be the best source of energy, as laying down of conventional electricity lines in these regions are not cost effective, the initial cost of installing solar power system emerges as the main stumbling block in spreading the use of this source of energy. Moreover, this would add to the subsidy bill of the government as well, in addition to the support provided to the industry thereby making it both an economical, as also a political issue. The other issue is whether banks would be willing to provide loans for these kinds of projects, or consumption, given their rather risky nature. Of course, despite all these, proposals for setting up of over 3 GW of solar power systems in India have been submitted by various solar power companies. All these pose challenges in front of MBPV. Not only that, in the face of higher fossil-fuel costs, there could be consolidation in the conventional power industry to be cost competitive in the market by possibly exploiting economies of scale, which may pose another threat to MBPV and other solar power companies as well.

Globally, the solar module price is plummeting. The generous feed-in tariff offered by the Spanish government in 2007 resulted in a huge demand growth in that country. This triggered substantial expansion and new investments worldwide in manufacturing facilities of solar modules. When such support was stopped by the Spanish government in 2008, the demand in the global market fell sharply by 40 percent at a time when industry was already in an overcapacity situation. This resulted in a substantial fall in the price of solar module. The situation has still not improved. The only hope is the expected growth in the German market in the aftermath of initiation of a proposed government support system in that country. If the situation in the global market does not improve soon, MBPV could be in a Catch 22 situation.

PERFORMANCE

MBIL is one of those few companies in India which have showcased their ability to grow fast. Transforming a company from a level of an annual turnover of around US $ 3 million in 1994 to a company of US $ 22 billion in 2009 is no mean achievement by any standard. The growth has been phenomenal particularly in the new millennium despite an occasional dip in annual turnover during the period. But, surprisingly, the performance of MBIL stock in the Indian capital market has not been impressive at all. In comparison to the movement of BSE SENSEX, the parameter that represents major shares traded in the Bombay Stock Exchange, the performance of MBIL shares has been dismal over the period with a consistent fall in its share prices with respect to SENSEX value (see Exhibit 4). However, this is not to say that MBIL share price have always fallen. The share price touched levels of US $10-11 (equivalent to Rs. 500-550/- for each share having face value of Rs. 10/- only) on two occasions during the period between Jan 2003 and July 2009. In between the years of 2004 and 2007, the share price remained at the level of around US $4 (equivalent to Rs. 200-225/- per share), which, however, came down to the level of less than US $2 (i.e. less than Rs. 100/-) in the recent period (Exhibit 5). Particularly noticeable is the fall during late 2007 and early 2008, when the Indian economy was having a boom time and no sign of crisis was present anywhere, neither in India, nor globally. One reason for this behaviour of the MBIL share could be continually falling profitability of the group as captured in PBDTA (profit before depreciation, tax and amortization) as a percentage of sales revenue during the period (Exhibit 6).

The recent global financial crisis has had its impact on the financial and stock market performance of almost all the companies worldwide. But, in case of MBIL, certain internal issues may also be the reason behind the performance of its share in the Indian capital market. The question arises whether extensive diversification in a short span of time has had its impact on the mind of the shareholders in this case or not. This is an open question.

Subject: Diversification; Financial performance; Optical disk; Globalization

Location: India

Company / organization: Name: Moser Baer India; NAICS: 334112

Classification: 8651: Computer industry; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 96-105

Number of pages: 10

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600028

Document URL: http://search.proquest.com/docview/745600028?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 29 of 100

SECTION 2. FOCUS ON DIVERSIFICATION, ACQUISITION, NEW VENTURES - Chapter 10. Silverline Technologies: Fight for Revival

Author: Shukla, Smita; Laghate, Kavita

ProQuest document link

Abstract:

Silverline Technologies, an IT company, incorporated in 1992, during its initial years of existence created some historical landmarks. The company then went on an acquisition spree to grow. Within a span of a year, the company acquired four companies, all in cash deals. Within the next two years the company became a classic example of havoc that can be unleashed if a company blunders in mergers and acquisitions. The company even defaulted on paying salaries to its employees. Surprisingly, the company managed a turnaround. The company released the movie "Hanuman" which became the first animation blockbuster movie in India. The company restructured itself. However, post revival the company once again went on an acquisition spree. The company is again concentrating on "buying capability" instead of "building capability". This case traces issues related to strategic management (mergers and acquisitions), competitiveness and corporate survival at STL. [PUBLICATION ABSTRACT]

Full text:

PROLOGUE

"We are fortunate to be back. It is just our relationships that helped us" opines Ravi Subramanian, Chairman Silverline Technologies Ltd.4, while discussing the turn around of Silverline from the rock bottom status it reached in 2003 on account of acquisition blunders it made. Silverline Technologies was formerly, one of the top software companies in India. It was ranked sixth by the National Association of Software Service Companies, India (NASSCOM) in 2000.

HISTORY

Silverline Technologies Limited (STL) was started on April 13, 1992 as a public limited company. Mr. Ravi Subramanian, Mr. Pat Sarma, Mr. Paramjeet Bhalla, Mr. Ram Mahtani, and Mr. Arjan Daswani were the main promoters of the company. The company was providing end-to-end support solutions for the IT department and system integration, technical support, customer care, back office shared services, and was also extending its expertise in animation and media services.

The growth that the company exhibited in the first decade of its existence was tremendous. Silverline Technologies recorded a compounded annual growth rate of 22 percent and 29 percent in revenues and post tax earnings between the years 1995-1999. Within a short period of time since its existence, the company had 1350 employees, 920 in India and 430 in the USA. As mentioned in an article by Quinn William T, "A Pioneer Stumbles", Silverline was seen as a pioneer company in the US. It prospered during the 1990s by taking on labour intensive software development jobs and having much of the work done by computer professionals in India who earned far less than their peers in the US.

Silverline Technologies became the first IT company in India to hold credit for achieving some significant landmark events. Some of these were; Silverline Technologies became the first IT company in India to earn ISO 9001 certification from KPMG (year 1994). It also was the first IT Company in India to obtain SEI CMM Level IV certification (1994). It became the first IT export company to get listed on BSE (Bombay Stock Exchange - year 1996).It also became the first IT company in India, to issue ADS (American Depositary Shares) and list on NYSE (New York Stock Exchange - year 2000). By listing on NYSE, Silverline Technologies moved away from the beaten track of infotech companies mainly listing on NASDAQ. The size of the ADS issue was US $125 million @ US $25 per share. ADS issue made the company more visible in international markets and this also boosted customer confidence in the company. However disclosures made during the ADS issue also revealed that, Silverline Technologies was not a broad based company and its revenues were highly dependent on a few large clients.

Exhibit 1

Excerpts from the article written by Krishnan Thiagrajan for Business Line's Investment World (Dated June 25, 2000):

"According to the offer document, in the past two years, nearly 45 per cent of the revenues of Silverline came from two corporate clients. In the first three months of 2000 and in 1999 full year, First Data Corp, Silverline's biggest client, accounted for approximately 18 per cent, 30 per cent and 29 per cent respectively of the revenues. In comparison, Infosys' largest client accounted for 7.2 per cent and 6.4 per cent of the revenues in 1999-2000 and 1998-99 respectively. In this context, broad basing the client base will hold the key to Silverline's revenue growth.

Acquisitions as a strategy: As Silverline proposes to aggressively complement organic growth with strategic acquisitions, the near-term financial performance will, to a large extent, be dictated by this strategy. There is a possibility that further acquisitions may enhance the risk of cultural incompatibility and possible decline in gross profit margins.

Switch from mainframe to web-based solutions: For Silverline, nearly 35 per cent of the revenues in 1999 were derived from legacy-based systems (or mainframes). The company's future will depend to a large extent on its ability to switch to client server and web-based solutions environment. While the reacquisition of Silverline Technologies Inc. will help the cause, the high degree of dependence on the mainframe platform is unlikely to augur well from a long-term perspective. The need to monitor constantly this switch holds the key from an investment perspective.''

NASSCOM, (National Association of Software Services Companies in India) in 2000 declared Silverline Technologies Limited, the sixth largest software company in India. With good reputation the company was serving its clientele, which included many of the Fortune 100 companies. For example: J P Morgan, Goldman Sachs, Morgan Stanley, First Data Corporation, New York Times, Philip Morris etc. The years, 1999, 2000 and 2001 were phenomenal in terms of growth for the company. The company was also collaborating with international companies for services. Click4care Incorporation, a health management applications service provider was provided with comprehensive e-business solutions by Silverline Technologies. Silverline Technologies had an arrangement with Niku Corporation, one of the leading providers of services relationship management solutions to expand its product development and enhancement efforts in India. The company had a tie-up with Enterprise Alliance Program to provide mobile business solutions to clients. It also had implemented Point-of-Sale (POS) and Order-Processing-Systems (OPS) for Hong Fung Gold Technology Ltd. one of the Hong Kong's leading publicly listed companies specializing in gold and silver jewellery, ornament and giftware manufacturing.

EMERGENCE OF DOT-COM BUBBLE

From 1995-96 onwards, the world witnessed emergence of the dotcom boom, and this happened on account of the growth of the internet sector and related industries. The period witnessed creation of many internet based companies referred to as dotcoms. Venture Capital companies were willing to back new entrepreneurs, who were able to sell their ideas because of the novelty of the dotcom concept. This resulted in record setting valuations of dotcom companies. This, also created on exuberance in the IT sector in India. A number of Indian companies went on an acquisition spree of small-big IT firms in the developed markets or developing markets. HCL Technologies acquired a stake in Deutche Software, Satyam acquired a dot com company nellaworld.com etc.

Silverline Technologies was also one among them. Silverline's bread and butter business of providing maintenance and software development for main frame and legacy systems had begun to look unattractive by the turn of the century. The company, in an effort to boost its growth went on acquisition spree in 2000-01. In a span of six months, the company acquired three companies. In April 2000 the company's wholly owned subsidiary, Silverline (Canada) acquired CIT Canada (a software development firm in Toronto) for an amount of US $4.2 million in cash. In September 2000, the company acquired Megasys Software Services for US $6.2 million in an all cash deal. The company acquired Sky Capital International, a Hong Kong based information technology firm, for US $22.5 million also in on all cash deal. Sky Capital International was a 140 employee company with revenues of US $24.3 million. Silverline acquired the company to establish its presence in Hong Kong and Japan.

In Oct 2000 Silverline, which was largely a main frame and legacy system maintenance company acquired SeraNova (a pure play e-biz solution provider from Intelligroup) in October 2000 in a part stock and a part cash deal. The transaction value was roughly US $50 million and along with SeraNova came a workforce of 1,400 people and a debt of roughly US $60 million. Both the companies were almost of the same size. It was expected that SeraNova's acquisition would offer Silverline Technologies a place in the e-business category, given that, SeraNova derived all its revenues from internet based services. At the point of acquisition, SeraNova's revenues were around US $85 million and it was a niche player in the e-commerce space. Its clients were blue chip companies like Volkswagen, Audi, HP, Novell and 3Com. Here it is important to point out that on account of the big size and diverse nature of the two companies, the process of integration was difficult. Integration of technology, culture, manpower, were some of the critical areas, which demanded a lot of attention. To add to the woes, the business of SeraNova, at that point was dipping. After concluding all the above mentioned acquisition deals, Silverline had spent almost all the money which the company had raised through stock offerings in the US market.

Suresh Krishnamurthy, an analyst with Business Line's Investment world stated in an article dated November 5, 2000 "To improve profitability of Sky Capital International and SeraNova, Silverline Technologies needs to transfer the bulk of the work done onsite now to the offshore development centers in India. This integration may take a while. This is because Silverline has close to 920 software professionals in India, in addition to SeraNova's 550 employees. The process of integration would have been quicker if SeraNova did not have an employee base in India. With such a massive employee base, maintaining high capacity utilization in its development centers in India is a challenge for Silverline Technologies". The article further stated "One area where acquisitions are normally expected to produce significant benefits to an acquirer is in reducing 'Client Concentration' risks. However, there is a possibility that Silverline Technologies' acquisitions may not deliver on that count. Consider this: one of the Silverline Technologies' main clients is First Data Corporation, which accounts for close to 18 percent of the company's revenues. In Sera Nova's case, American Express contributes 40 percent of the revenue. Both First Data Corporation and American Express are clients of Sky Capital International. Silverline Technologies has, however, not disclosed the contribution of these two entities to Sky Capital International's revenue. But, it appears reasonable to conclude that in the combined organization, client concentration, especially of First Data Corporation and American Express, will be high. And limited number of clients may expose Silverline Technologies to greater risks".

Some analysts also pointed that the valuation of Sky Capital International and SeraNova was not very appropriate. Silverline Technologies acquired Sky Capital International at a revenue multiple of 0.9 and SeraNova on the other hand at a revenue multiple which was close to 1.2. They pointed that in the SeraNova acquisition deal, in addition to stock swap, a large amount of cash flow was also happening on account of debts of SeraNova 1. Market analysts felt that the companies which were acquired had been overvalued in the entire transaction. This was being said in spite of Silverline Technologies' efforts to create an appropriate due diligence team for evaluating each of the acquisition targets. This probably pointed to inefficiency exhibited by such teams at Silverline Technologies.

The process of integration of SeraNova with Silverline Technologies affected the margins of Silverline. On account of the above, the revenues of the company which had increased by almost 60 percent in 2000-2001 from the previous year now went down by 24 percent in 2001-02 in comparison to the previous year. Further, the revenue dipped drastically in 2002-2003 by 82 percent in comparison to the previous year 16. However, this still did not affect the shopping binge of Silverline Technologies, which in the financial year 2001-02 acquired EcommIT, a technology service company based in Cedar Knolls 2.

DOTCOM BUBBLE BURST

By mid of 2001, the dotcom bubble had started deflating. A majority of the dotcom companies ceased trading after burning their initial venture capital and many never made any profit. Thus, many of the dotcoms were either acquired or were liquidated. The global scenario created a major slow down in the Indian IT space as well.

Silverline also had to suffer losses in the above mentioned era and in 2000-01, a major part of the goodwill, accounts receivables, and fixed assets of SeraNova were written off by Silverline Technologies. Such expenses were as high as US $95.7 million and US $52.6 million for the years ending 31 March 2001 and 2002 4. The company's growth was badly affected and in addition to that, the company had to lay off 500 of its 2,300 employees of the combined entity. This figure was a whopping 22 percent of its workforce. To further contribute to bad times, the revenues of Silverline's Hong Kong based subsidiary, Sky Capital also dipped by 74 percent from INR 504 crores (approximately US $126 million) to INR 132 crores (approximately US $33 million) during the financial year 2001-02. Silverline was thus in the midst of a crisis. The process of integration of the companies it had acquired was still not over, and to top it all, the dotcom bubble burst also affected its operations. Silverline was not a broad based company. Its revenues were heavily dependent on some major clients and markets. Therefore, the top-line as well as the bottom-line growth of Silverline was badly affected.10

To add to the tragedy, the 9/11 incident in the US also created a negative impact on the company. SeraNova had an office in the World Trade Centre with a staff strength of 300. After the tragedy, everything went bust. Client's accounts collapsed and manpower came on the bench. Manpower (majority of which was sitting idle) costs of the company at that point of time used to be as high as US $5 million per month. The company had to borrow funds in order to deal with such expenses.4

The stock of the company subsequently was de-listed from two regional stock exchanges of India; Ahmadabad and Chennai Stock Exchange on account of non-reporting of financial information. The stock on the Bombay Stock Exchange moved into 'Z' category where rouge stocks are placed. Thus the trading of Silverline Technologies almost halted on the Bombay Stock Exchange for a period of roughly two years.18

In the words of Kumar Subramanian (Vice Chairman of the company and younger brother of Ravi Subramanian,) "The e-com business which collapsed after 9/11 debacle, never revived".4 The idle service costs led to working capital crunch and the manpower already benched started leaving the company. The company started defaulting with banks on account of cash flow problems. Many banks started filing suits against Silverline Technologies. In May 2002, HSBC Bank US initiated legal proceedings against Silverline Technologies, in June 2002 Sovereign Bank (US) initiated similar proceedings, in Dec 2002, Andhra Bank and Punjab National bank also initiated legal proceedings against Silverline Technologies for dues running into millions of rupees.2 In 2003, Silverline Technologies closed down its two US based subsidiaries, Silverline Technologies Inc. and SeraNova on account of accumulated deficits from operations and losses on account of the write off of assets.9

To quote, Kumar Subramanian "When we acquired SeraNova, e-business was seen as the biggest opportunity of the decade. But post dot-com crash, and after the 9/11 episode, demand for e-business crashed and SeraNova became the biggest liability for us. In hindsight, one can say that it was a costly mistake, but at the time we made acquisition it was a strategic and a well thought out decision".22 Almost the same thing was stated by Mr. Ravi Subramanian, as mentioned in an article "A Pioneer Stumbles". He blamed SeraNova deal for the undoing of Silverline Technologies. He stated "It was the wrong timing; it was too big for us. The margins did not really work out".2

The company was going through extremely bad times. It made some attempts to somehow survive through this rough time. For example, as a part of its restructuring plan in 2002, Silverline Technologies sold its American Express account to Cognizant, and in the same year it sold its CitiCorp and Green Point mortgage services account to iflex solutions.18 Unfortunately, nothing worked for the company.

ISSUES RELATED TO QUALITY MANAGEMENT PRACTICES, HUMAN RESOURCE ENVIRONMENT AND TRANSPARENCY AT SILVERLINE TECHNOLOGIES

Many market analysts, towards the end of financial year 2001-02 had started questioning the quality of acquisition deals the company had entered into. Questions were raised on the way the valuation exercise for some of the acquisitions were carried out (the investment bankers who were involved in the valuation exercise for deals were PricewaterhouseCoopers and J P Morgan Chase). Similarly, some also doubted the leadership and managerial abilities of Mr. Ravi Subramanian. As mentioned by Quinn William T, in his article "A Pioneer Stumbles", 'The entrepreneurial skills and financial resources of Mr. Ravi Subramanian did not match his ambitions'. The article also referred to a statement made by Raj Koneru ex-CEO of SeraNova calling the Silverline management team "very unprofessional and not up to the job of running the combined companies". Raj Koneru further stated in the article that even though Silverline was a public company, internally it was like a family managed business. Subramanian served as Chairman and two of his brothers Mohan and Krishna served as Directors.

A case to point was preferential issue of warrants to a promoter owned company -'Suba Mauritius', to fund the acquisitions, in 2001. The total numbers of warrants issued were 20 million at a conversion price of INR 51 (reduced from the earlier price of INR 157). As per market analysts, this indicated that the promoters themselves had no faith in the improvement of the stock of the company on any future date, and this was also an attempt by the promoters to enrich themselves at the cost of the general share holders.23

The parameters on which an analysis and valuation of an IT company rests is its management excellence, human resource quality, its employee retention ability, broad customer base and multiplicity of service offerings. On all these parameters, the company was slipping by the end of financial year 2002 23. In an article titled 'The perils of being in the middle rung', written by Snigdha SenGupta, it was pointed that, Silverline had a fundamental weakness in its business model. Silverline Technologies was a promoter driven company in which little room was being provided to professional managers in strategic business decisions. Thus, during troubled times, Silverline exhibited at top management level positions constant churn. CEO, CFO and key managerial personnel left at regular intervals, replaced by new ones, who also soon followed the suit. Mr. Ravi Singh joined as CEO in 2001 from SeraNova. By 2002, Mr. Ravi Singh submitted his papers after Silverline Technologies decided on a strategic move to shift senior management of its global operations to India from the US. Silverline then announced the appointment of Dr. Nirmal Jain as the new CEO of the company. The company also reconstituted its board of directors wherein Dr. Nirmal Jain and Mr. Prem Rajani replaced Mr. S.V. Mony and Mr. Shankar Iyer. Again, within a span of six months Dr. Nirmal Jain resigned from the position of CEO and stepped down as director of the company as well. In 2003, Mr. V. Panchapakesan resigned as a director of the company. In 2004, Mr. Ram V. Ramanan and Mr. Ramchandra N. Swamy joined in as new directors of the company.18

Silverline Technologies at that point (2002) also did not see any real growth coming in from its animation division and thus it decided to shut down the animation division alltogether. The employees who were permanent were not even paid their dues because Silverline Technologies was in a bad financial position. The company however promised that it will pay employees when it manages to regain its financial health. Freelancers on the roll of the animation division were simply asked to quit.22 Same was the fate of a number of its employees in the US. As per the article by Quinn William T, titled "A Pioneer Stumbles", in February 2003, the New Jersey Department of Labour (US) docketed a judgment against Silverline's failure to pay more than US $5.2 million in wages and benefits to employees. The company made one payment of US $7, 00,000 but still owed more than US $4.5 million. Some of the employees who were Indian nationals and had moved to the US on H1B visas for clients of Silverline were simply left in the lurch.2

Exhibit 2: Excerpts from the Report of Khandwala Finances Limited, March 19, 2002: (A reputed stockbrocking and research firm in India)

Why Exit Silverline?

Poor Management Track Record

Silverline has to its credit a constant churn at management levels. CEO, CFO and the key managerial personnel have held positions and left at regular intervals. We think that in a knowledge oriented service industry where management and human resource quality is the key for success, having a management with extremely poor commitment towards the long term business performance of the company could lead to catastrophe for the company.

Creating Promoters Wealth at Investors Cost

Silverline will be doing preferential issue of warrants to its promoters - Suba Mauritius Limited. The total number of warrants issued will be 20 million and the price for conversion is fixed at Rs. 51, reduced radically from the earlier Rs. 157. This exercise price looks absolutely bizarre considering the current market price at around Rs. 59, essentially implying that promoters themselves have no faith in the improvement of the stock price going forward. This we believe is a classic case of creating promoters wealth.

Pitiable Record of Financials

The biggest negative regarding Silverline is that the company does not disclose its financial to investors. We contacted the investor relation department of Silverline and managed to get the company financials. Considering that the company is listed on NYSE, and then too not very transparent on its financial disclosures and segmental reporting, we think this is a case of poor business practice.

Exhibit 3: Revival of the Company

Silverline Technologies in consultation with 'First Call India Equity Advisors' took concrete steps to revive the company again in 2005. The process was initiated on account of a chance meeting between V.V.L.N. Sastry, Country Head 'First Call India Equity Advisors' and Mr. Ravi Subramanian in 2005. Mr. Ravi Subramanian invited Mr. Sastry to discuss the downfall of the company and their discussions resulted in initiation of restructuring of Silverline Technologies. First Call suggested measures to rectify the past and the first step in that direction was to interact with banks and financial institutions for debt settlement in the form of one time settlement. The company started negotiations with the banks and in order to settle debt, the company sold its property based in Thane India (state-of-art 1,40,000 sq ft spread software development centre), and similar 1,50,000 sq ft facility available in Chennai and Hydrabad, India to a new investor, Creative Choice InfoCity Together with a syndicate of investors for Rs. 60 crores (Approximately US $15 million) through 'sale and lease' transaction. A lease agreement was also signed with Effective TeleServics Inc, a Texas based company. Mr Ravi Subramanian states in the article 'Bouncing Back', published in Business India November 2006, "We sold all the properties to the new investors (Barot and Company) and they have leased it back to us". Under the 'sale and lease' transaction, the company signed a MOU with Creative Choice InfoCity to develop a business relationship where InfoCity was responsible for fulfilling infrastructure needs of the company (Silverline Technologies).4

The money which Silverline Technologies owed to various banks was Rs.155 crores (approximately US $38.75 million -sum total of principal and accumulated interest). In the one time settlement scheme, this debt was settled for Rs. 50 crores (approximately US $12.5 million). The company was successful in convincing various banks (Indian Bank, Punjab and Sindh Bank, J&K Bank, Bank of Bahrain and Kuwait, Ratnakar Bank, State Bank of Mysore, Canara Bank and Americorp International) to take a cut of Rs 105 crores (approximately US $26.25 million).4

First Call during its due diligence process discovered that Silverline Technologies had almost ten half developed software for animation movies. One among them was Hanuman. First Call realized that if this film could be developed properly then it could fetch great returns for Silverline Technologies. Thus the animation movie was completed with the help of other collaborations and was released in 2005. The movie was a great success and in fact became the first block buster animation movie in India. Surprisingly, Silverline Technologies itself never realized the true worth of its animation division. To point a case, Hanuman was initially developed as a one small project for an UK based company which got terminated when the customer decided to pull out. As stated earlier, Silverline Technologies at that point did not see any real growth coming from its animation division and decided to shut down the animation division altogether. Silverline Technologies post release of the movie Hanuman again started recruiting a team of professionals to complete its half finished movies which were all based on Indian mythological subjects.4

Silverline Technologies also planned to use its InfoCity infrastructure in Thane and Ahmedabad to start BPO practice centers. The company crafted out a base for redeveloping itself and this included making the Silverline Technologies strong in - IT/ BPO/ ITES and animation space. This, the company planned to do with a blend of organic growth, mergers and acquisitions and joint venture routes.

In May 2006, the company announced its turnaround plan with focus mainly on streamlining operations and encouraging value driven businesses. The three vital growth drivers identified by the company were a) increased share holder value and increased transparency, b) clearance of all outstanding issues with all who had contributed to the success of the company in the past, and c) laying emphasis on business driven by vertical markets led by proven leadership in the areas of information technology and business process outsourcing. The company announced enhancing its focus on growth energies in the business process outsourcing and IT consulting business through organic and inorganic growth. The company also planned to launch 'Infrastructure Technology Outsourcing' (ITO). To jump start the 'ITO' practice, the company forged a strategic relationship with a leading Canadian firm, Millenniumcare Incorporation 17. Chairman Ravi Subramanian in his address to shareholders in the Annual General Meeting held in November 2007 expressed extreme optimism for the future of the company. He mentioned that the company planned to grow at least three folds via mergers and acquisitions route and stated that the company had short listed other companies for partnering in the future 17. Thus the company once again went on the road of acquisitions to consolidate and grow strongly. However, this time the company made all deals on stock swap basis instead of cash. This was done to avoid any debt burden on Silverline Technologies. The companies that were being targeted were supposed to be profit making ones 17.

In view of this, Silverline Technologies acquired Millenniumcare Inc in 2007. Millenniumcare Inc was a Canadian based global helpdesk outtasking organization with delivery centers in Victoria, British Columbia, Toronto Ontario, and Mumbai. Millenniumcare served over 200,000 IT activities per month originating from 80 countries worldwide with over 25,000 log ins per month from end users and IT workers around the world. The company was also holding proprietary service management software 'I-Care' 17. Silverline Technologies also acquired Netxert Inc. a Detroit, USA based software development and business process outsourcing solutions provider. Netxert had extensive experience in cost effective software development and consulting solutions. It was delivering services in system integration to a number of US based clients in the area of automotive technology and government sectors 17. The latest acquisition for Silverline Technologies was the Canadian firm OMDR (Omega Direct Response - acquired in Jan 2008). OMDR has been in the business of selling outsourced call centre services. In the last ten years, the company had reported 65 million customer interactions with an employee base of 850. The company had been delivering its services from call centers in Toronto, Sudbury Ontario, Zacatecas and Mexico. Silverline Technologies has plans to establish OMDR facility at Gandhi Nagar (Gujarat) and Chennai (Tamilnadu) to leverage and extend off shore support services to its global clients 17.

In May 2007, Silverline Technologies disclosed its plans to reduce its capital and go for simultaneous consolidation and reorganization of capital. In relation to the plan, by Dec 2007 the company reduced its equity base from 300 million shares to 30 million shares meaning an investor holding 100 shares was left with ten shares of the company. The company de-merged the animation unit as an independent BSE listed company; Silverline Animation Limited. Silverline Animation Ltd is being traded on the Bombay Stock Exchange from July 2008 as a separate entity. The shareholders of Silverline Technologies were allotted four shares of Silverline Animation Technologies for every 100 shares of Silverline Technologies they were holding. The new company i.e. Silverline Animation Limited had ambitious plans. It aspired to be one of the leading players in Asia in the area of animation technology and wished to build world class products such as 'Hanuman'. The company also aspired to create global quality gaming and international education services. 19 In the same AGM, the company also announced the reappointment of Mr. Mohan Subramanian as a whole time director of the company with effect form Oct 29, 2007 for a period of five years. 19

The Way Ahead for IT Sector and Current Position of Silveline In The Same:

The competition in the Indian IT sector is getting intense day by day. The revenues of some of the top IT companies have already dipped on account of the slow down in the US and European markets. Some of them have also suffered on account of foreign currency conversion losses. The banking, financial services and insurance (BFSI) and business process outsourcing (BPO) have been worst hit by the subprime crisis. Most of the western financial companies have had huge losses and are undergoing major changes which have slowed down their decision making on large projects 7. IT companies in India are trying various business models to survive as well as grow. Mphasis, a well known IT company has chosen the 'Six Box' strategy to grow. It has entered into retail, airlines and logistics business and further identified voice base BPO, application development for the financial services and embedded systems, to maintain and enhance its growth. iflex solutions another mid tier IT Company has used niche strategy for growth. When the company started in the early 1990s, it decided not to go the IT services way. It decided to keep services capped at 25 percent of its revenues and to generate remaining amounts from solutions and products it created or provided. Today, iflex is extremely successful on account of its flagship banking software product, Flexcube. Another small IT company iGATE Global Solutions has created on unique transaction base pricing model to get wider inroads into the US and European markets. The company has also focused on four verticals - insurance, banking, financial services and retail.10 Infosys is focusing on building competencies in new verticals, apart from BFSI, such as retail and telecomm to diversify its portfolio and revenue risk. In the above mentioned highly competitive IT space, Silverline Technologies is now making an attempt to find its own space.

It appears that from past experiences, Silverline Technologies has not learnt much. It clearly appears that the company is again passing through financial problems. The company has neither on its website nor on the BSE (Bombay Stock Exchange), reported its financial performance during financial year 2008-09 (A mandatory condition for all listed companies). The company is still not transparent regarding its operations and acquisition deals executed during 2007-2008. From the above it can thus be easily understood that revival and growth for Silverline Technologies will not be an easy process. Though it seems that Silverline Technologies is making an attempt to de-risk its business model by entering into different business areas like BPO, healthcare solutions, animation etc, it still face tough competition from industry peers. If at this stage, the acquisitions made by Silverline Technologies do not click, then the survival of the company itself will not be possible and the strategy used to revive the company will be questionable.

Subject: Strategic management; Survival analysis; Software industry; Acquisitions & mergers

Location: India

Company / organization: Name: Silverline Technologies Ltd; NAICS: 511210, 541512

Classification: 8302: Software & computer services industry; 2310: Planning; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 106-120

Number of pages: 15

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600055

Document URL: http://search.proquest.com/docview/745600055?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 30 of 100

SECTION 2. FOCUS ON DIVERSIFICATION, ACQUISITION, NEW VENTURES - Chapter 11. Diversification Plans of Prime Technologies

Author: Gautam, Taruna; Agarwal, Raveesh

ProQuest document link

Abstract:

This case is related to Prime Technologies, New Delhi, initially set up with the business of assembling imported parts of photocopiers, sales, service, spares of copiers and taxes, PCB repairs, gradually starting their A. D. Tours & Travels Company and finally venturing into the prospects of importing chocolates. Import of chocolates originated from Jingyuan Sister Ma Co. Ltd, Beijing. Prime Technology launched these chocolates in Indian market with a view to introducing cream filled designer chocolates for the first time to boost the consumption of chocolates. Chocolate is not widely consumed in India on a daily basis, so they looked at positioning them for everyday consumption, from being consumed only on select occasions. This case focuses on the strategy adopted by Prime related to brand positioning and the logistics associated with the import and distribution of a perishable product like chocolates, in the context of the Indian macro environment and industry structure. The case initially focuses on the industry environment and product class. Further it narrates the experiences of Prime Technologies during their voyage of importing chocolates. It concludes with farsightedness and how calculations somehow went wrong leading to the collapse of the business plan, giving a setback to their diversification plans. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

In international trade, the chocolate industry is segmented by three broad categories: raw cocoa bean farming, cocoa processing and finished chocolate manufacturing. Chocolate is not widely consumed in India, where it is largely perceived as a luxury, but the nation's tastes are changing. India is a country of festivals. There are dozens of festivals that are celebrated nation wide and several dozens region wise. During each festival people meet with their family, relatives, friends etc. Exchanging sweets and gifts is considered a must since it indicates sharing happiness. A majority of Indians still view traditional sweets, rather than chocolate, as worthy of a treat or on a special occasion. Now what better can be than sharing your love, happiness and emotions with imported designer chocolates and candies that are famous all over the world quality, taste, texture and fragrance and have millions of admirers. To import chocolate in India requires special efforts due to the climatic conditions. Special oils have to be used to leverage the melting point of the chocolate above 30 degrees; otherwise it would not be able to withstand the usual ambience on the shelves of traditional Indian retailers. This might be the reason why chocolates, whose taste is "influenced by the English taste", is exported only to those continents which have favorable climatic conditions. This case is a true story about the transformation of two friends into ambitious and successful entrepreneurs for a considerable period of time. They were quite good at taking chances and exploring potential avenues for their business expansion. But somehow gradually their planning and farsightedness did not work well enough in the business venture of chocolate imports which ultimately proved fatal for their business.

Thirty years ago, a 24-year-old youngster, Anil Agarwal from New Delhi was employed as a sales executive in a photocopier company of repute. It taught him how to land on one's own feet in any situation and exposed him to a set of extremely talented people, which in turn helped him grow tremendously as a person. Inspired by his mother's sense of entrepreneurship, he resigned from the company. Now the biggest challenge was how to move ahead so as to get the most out of the life both professionally and personally at home. Anil Agarwal decided to start working on his own. Full of zeal and energy, he along with his colleague, Dinesh Sharma decided to penetrate the market through a new company 'Prime Technologies'. They decided to start the business of assembling photocopier parts, sales and repairs of assembled machines. Although market conditions were not favorable for them, they continued their work. After paying bills and loans, they were left with US$ 500 profit and the valuable realization that they did, indeed have a business in their hands. However, over the years they realized that one's plans should not be influenced by such uncontrollable circumstances. What is important is what we, as an organization, can do proactively to meet our objectives.

The concept of a large class of people that desires the best but doesn't have the means to pay for it was an inspiring idea for them. They held the pulse of Indian consumers by offering cheap products without compromising on quality. Since inception, Prime's business had a very lean operation model with low costs, low pricing, high-quality products and creative marketing. High-class consumers had several alternatives for photocoping machines and other parts, while on the other hand, the middle lane was free. But not any more, Prime had already attracted followers who were now trying to copy its market positioning of providing high-quality products at accessible prices. Though the product offered superior quality, an important aspect was missing, which was after sales service at the customers door steps. In its early years, Prime distributed its products via door-to-door sales but eventually opted for a sales format. With expansion of the business, Prime began institutional sales but the low profit margins, combined with intense competition in the market, drove the search for alternative distribution channels and new markets in other states. Today the distribution format is through franchises, a key part of Prime's success is presence in major states and customer service at their door steps. The company is still looking for significant unrealized potential in the market with even more promises.

The partners of Prime are committed to continue growing their business. In order to continue it's positioning within the market, Prime's strategy consisted of looking for opportunities to profitably expand with horizontal integration. Prime gradually showed their presence in the tours and travels industry by establishing a new company named as "A. D. Tours & Travels". This was part of an expansion strategy, as the company always had a vision to enter into different segments of the market. Prime believed that it should seek coming opportunities, so as to continue growing through a range of good quality and variety of products, excellent customer service, and being efficient in their operations, thereby creating a strong recognition for the company, which is essential for the company's expansion plans. They pride themselves on providing excellent support services to their customers. They feel that the success of a business is dependent on the management of expenses and the time which reflects on the earnings. They created a recipe that gave them an opportunity to achieve their business goals. Consumer perception is the key factor in building brand equity. If the customer perceives Prime products and services to be unmatched by those of its competitors, then they would more than willing to pay a premium price for the products.

During their success journey, Anil came into the contact with various high profile businessmen. "Haq Consultants", an importer and exporter of repute was one of them. "Haq Consultants" was one of the few Indian importers of confectionary and other items from different countries. In India, demand for imported chocolates is driven by consumer tastes and population growth. The profitability of individual companies depends on manufacturing, supply chains and marketing efficiency. Large companies have advantages of economies of scale in manufacturing and purchasing. Small companies can compete effectively by offering premium and specialty products. This led to the generation of an idea for Prime management to expand their horizons by importing premium chocolates and candies for the Indian market to cater to the urge for "something sweet". Prime was looking at introducing newer products to boost the consumption of high quality chocolate in India that melts in the user's mouth, and gives the feeling that you have just spent a couple of minutes in heaven! Something customers would hold out for a special occasion- where they want to celebrate something special. After all, most of the consumers were aware of the many benefits of chocolate which have been touted in numerous articles everywhere for the last few years. Chocolate being the food of the gods, it also lowers the levels of bad cholesterol, increases one's mood because it increases the levels of serotonin in the brain, and increases the anti-oxidant content in the body. A piece of chocolate a day, keeps the doctor away etc. Since chocolates are not consumed on a daily basis, Prime was looking at positioning them for everyday consumption, from being consumed only on select occasions. Imported chocolates are not only in demand, but also offer bigger margins as compared to the locally made brands to retailers. Sales of imported chocolate was growing at triple digits. Imported brands offer newer chocolate formats to consumers, resulting in higher demand. Sales of imported chocolates are equal in value to that of domestic brands put together, whereas imported chocolates sales are growing at 100 per cent, whereas made-in-India brands are growing at around 25 to 30 per cent. In some leading stores, the sales of imported chocolates are double the sales of domestic brands. Due to all these factors, Prime was convinced that with the launch of designer cream filled chocolates the premium confectionary category would be revolutionized and believed that this would lead to high growth for the overall confectionary market in India.

Although competition in the chocolate market has increased significantly, the current excise duty and market structure where most of the competitors operate on higher margins and trade loads, was it really profitable for Prime to venture into this segment, more so when there are such strict price points in India with regard to the consumer in 2002-03? In spite of this, Prime was confident that it would make its presence felt in a significant manner in the market. The idea was to give the brand - which was, in a sense, introducing a new category here - an international aura associated with a premium dark chocolate brand.

On the other hand, there was a buzz in the retail industry, and the buzz was created by lots of Indian and foreign manufacturers who wanted to have their retail presence in India, especially by way of launching a new brand. Beijing Jingyuan Sister Ma Company Ltd. an 18 years old chocolate company from Beijing, China, was in India to look for and search options for entering the Indian market. Exhibiting at a trade fair in New Delhi, the company brought a nice selection of different varieties of milk, dark and white designer, cream filled chocolates to Delhi for its business discussions.

The company was primarily interested in setting up a franchisee network in India, but was also open for the right importer. They were ready to deliver through an importer, or a distributor, but the challenge was to find the right importer/distributor that could manage a controlled supply chain from the minute their products entered India, to the minute they reached the consumer and establishing a strong brand presence for "Sister Ma" in India.

Beijing Kangbeier Food Company Ltd. originated from Beijing Jingyuan Sister Ma Company Ltd. and was established in 1991. It developed into one of the largest professional candy and chocolate companies in China, and also the most prominent representative of the North China confectionary industry. The company consisted of four large-sized factories, more than 1200 staff and covers nearly 200000 square meters area. The company's main brand name the "Sister Ma" was awarded "Chinese Well-known" in 2003 by "China Light Industry Quality Assurance Center". Kangbeier Company regards "Sister Ma" as a banner; which not only merges traditional techniques and culture into products, but also creates more dainties adding upto life filled with sweetness. "Sister Ma" that means "Sweet times shared with you" always maintains a sincere attitude towards their customers, high-quality but low-price products, high grade service to share a sweet time, and to become a most trust worthy friend. The brand name chosen was the umbrella brand, as it was felt that the corporate name is recognized by its brand rather than an individual product. Under the banner, it has many other trademarks, such as: "Sweet time", "Saifuli", "top-grade fruit taste", "Little Bill" etc. There are a series of products lines, including Crunchy Candy, Hard Candy, Chocolate, Milk Candy, Soft Candy, Jelly etc, covering more than 600 different kinds of packing. The company got ISO9001-2000 certificate and the CIQ and FDA registration and got the right to export and import by themselves. It handles every step strictly according to ISO9001-2000, and keeps abreast with market trends and rigid control over product quality so as to supply high quality confectionary products to its consumers with the firm belief in "Quality comes first, Consumer goes highest. Market goes first, reputation comes highest".

The company's attitude towards its customer was to embrace nature, to keep improving and to keep moving. The attitude towards its distributors was to create harmony, to keep reciprocity and to make profits for both sides. The attitude towards its suppliers was to respect customers, to consider quality as the essence, and to advance reputation. Attitude towards its staff was to appoint people of merit, to stand together regardless of the situation and to look at the future with a strong belief and the company's attitude towards its industry friends was to make friends extensively, to develop the undertaking together, to carry forward the common culture.

Beijing Jingyuan Sister Ma Company Ltd, whose production is entirely based in China, was targeting the premium segment of the Indian chocolate market. Hence, they were thinking of keeping the price on the higher side. With dreams of spanning the globe, the company was choosing their markets in a gradual and cautious manner. They were hopeful that Sister Ma pre-packed chocolate boxes as well as its concept of branded designer chocolate gift packs for corporate clients would be liked and appreciated by Indian customers. Sister Ma's premium chocolates and candies were the first of their kind in India and they were confident that kids and youngsters would love them. The business concept for Sister Ma was clear, and this seemed manageable in many markets. For India, one can even foresee that such a concept would be liked by many customers. But the challenge in the Indian markets was something else; it was the identification of the right distributor. Their main criterion for an importer and distributor in India was competence in controlling the supply chain. The distributor must be able to manage a temperature controlled supply chain from "A to Z". They stated and showed some samples of the chocolates which were already a bit soft due to the heat from the illumination at their stall and noon-temperatures during daytime in Delhi. The company started evaluating the right importers and distributors to get an entry into Indian markets.

Fortunately, Prime Technologies and Haq Consultants came into contact with Beijing Jingyuan Sister Ma Company Ltd. in the trade fair. After several long meetings and discussions with each other, Haq was granted approval to be the channel partners for the entire South East Asia, and the control of a new company to be set up in India to engage in procurement, storage, warehousing, transportation, processing, wholesale/cash and carry trading and dealing with Sister Ma brand of Beijing Jingyuan Sister Ma Company Ltd was given to Prime. Lifting of quantitative restrictions had made availability of foreign chocolates in India very easy at cheaper prices. The launch of Sister Ma brand in India was decided by an extensive 360-degree marketing program to provide good quality product which would give good taste delivery in Indian conditions with good value for money. It is just not enough to say that I am close to the door etc.; there is a need for the value preposition in the minds of the customers. Imported chocolate brands initially, instead of thinking of expansion should focus on core competency, offer the value proposition for the customer. The most important part is the positioning in the Indian consumers mind-space. They were thinking it all in a unique way, but they were not staking any claim to anything new. They were just introducing a different product to a market that hasn't seen anything like it before. They did not publicize that their products would any of be better than other products. Everyone has their own tastes, own preferences and they wanted to introduce this kind of chocolate to the home country. They felt that many people had not tasted these kind of chocolates before, and that became their goal, to the make them accessible to the common masses.

After working out all the terms and conditions, an order was placed an Beijing Jingyuan Sister Ma Company Ltd. The company had planned to launch the chocolates in the month of January before Valentine's Day, but due to fifteen days delay in receiving the first consignment it became somehow problematic to launch it at the right time. This was not the end of the issue, as they found out that they had not been cautious in finalizing the specifications related to packaging of candies and designer chocolates. The result was that they received the chocolates and candies in loose quantities. Thus, appropriate packing and pricing strategies became a main concern for the company along with positioning of the product.

It is said that the only thing that works for Indian consumers is the price-quality equation. Though this statement is a bit exaggerated, nevertheless, price is a very important criterion in the Indian consumer's mind. It denotes quality, status or even the worth of consumer for himself/herself or the loved one. Prime worked hard on pricing strategies; however prices decided by them were somehow higher in comparison to other imported products available in the market, keeping in mind the greediness of heavy margins by retailers. The other logic given was to establish a premium brand in the market with taste and quality. Prime was also concerned with the discount policy on certain gift packs of their chocolates in India; the discounts hit the mind and pull the greatest number of crowds. At the same time, they take away a part of brand equity. Prime made the strategies regarding the timing, assortment and promotion for discounts, and it was decided that during festive time, Prime would give heavy discounts on their products. Sister Ma chocolates faced direct competition in the confectionary industry not only from the strong presence of Cadbury, and Nestle in the Indian market but also from other imported chocolates like Ferrero Rocher (Italy); Prenicotti (Italy); Hershey's (U.S.); Toblerone (Switzerland); Skittles (Australia); etc. However, domestic manufacturers mainly produce compound chocolate products, so they can maintain their shapes and quality better in the Indian climatic conditions even though imported chocolate and candy products are perceived to be higher in quality and more pleasing to the taste than domestic products. Prime also focused on repackaging of chocolates and candies rather selling in loose quantities. All imported chocolates were packed in different size attractive gift packs according to the purchasing behavior of Indian customers. Prime maintained transparency by indicating product name, weight, volume or quantity of the contents, name of food additives, name, telephone number, and address of the importer, expiration date (year, month, and date), sign of vegetarian product and its maximum retail price in English on the label of Sister Ma chocolates and candies for retail sales.

There were some issues like positioning, promotion, location etc. which reinforced each other to justify to the consumer of particular worth. Prime addressed all these issues while launching a new brand Sister Ma in the Indian market. The location is the key to positioning and the biggest factor for the success of a retail brand. Since retail outlets account for nearly 99 percent of all chocolate sales, Indian consumers feel convenience stores as the venue where they buy chocolate and candy the most frequently. It is followed by supermarkets, hypermarkets, grocery stores, institutional stores, and bakeries which create a niche market for especially imported candy and chocolate products. Although retail outlets for imported chocolates were located in high traffic trade areas, it was imperative to first maximize brand awareness to potential customers because they would be more willing to enter a store if Sister Ma is at the top-of-mind as a premium chocolate. In today's marketplace, there is an overwhelming amount of competition for chocolate and confectionary goods. With both low-end and high-end brands, it is critical to develop a strong marketing position that will reflect Sister Ma's high standards of products and services. The basic approach of positioning is not to create something new and different, but to manipulate what's already up there in the mind, to retie connections that already exist. On a tactical level, Prime recommended implementing the building of a strategic alliance with upscale retail outlets to generate a buzz with presence in supermarkets, grocery stores, as well as in the other high end institutional stores, and bakeries. By implementing a strategic alliance with a popular upscale retailer, both parties achieved a mutually beneficial relationship. As the upscale retailer and Prime both developed marketing campaigns, it helped to build awareness for their customers. This gave an opportunity for existing customers to learn more about their affiliate's partners and helped to drive sales. Prime decided to maintain a team of in-house sales people who would sell approximately 65 percent of their total imports directly to retail chain stores and other stores in New Delhi. The remaining 35 percent was to be sold through regional wholesalers/distributors to retail stores in some states. They decided that they can either sell directly to retail stores, or push their products through contracted wholesalers/distributors in some other states.

It is a moot point whether a brand should be pitched as a foreign brand, or an Indian brand. Prime decided to pitch the brand as a foreign brand (same brand name) which evokes a sense of heightened quality in the consumer's mind and justifies the price premium. Needless to say, promotion should be backed by positioning, store experience, product performance and prices, but promotion was minimal for Sister Ma chocolates. They were not advertised on any medium. Prime relies on the location of their stores and foot traffic for name recognition in addition to word of mouth. It's done with a clear understanding of where a consumer can filter for factors such as engagement, likeability, quality, taste appeal, etc with an imported product. Finally, they launched their product in the first week of February. Initially the response of the market was overwhelming. Prime was expecting huge sales in the month of February, so they covered all prime locations of New Delhi. All retailers were also happy by the huge margin given on Sister Ma chocolates. But end results for February were very shocking for Prime Technologies, as sales was very poor for entire product range except one of its core products, Heart Shaped Chocolate somehow lower priced in comparison to their other product. They were still not disappointed, and started looking for opportunities outside Delhi also. They appointed distributors in other cities for proper coverage of the market. The strategy worked and they received good response from Punjab, U.P. and Rajasthan. But, here the company lost its farsightedness and during the second week of April, distributors started complaining about melting of the chocolates. This was a great challenge, because only a few retailers were having cooling display boxes where they could store imported chocolates. Again in these states, electricity was a major problem during summers.

Although Prime Technologies started working on the issue of providing cooling display boxes to their retailers however it was very much difficult in the initial stages of business, due to heavy financial burden the company. Again arrangement and distribution of the same to each and every retailer was not possible in a short period of time. Prime Technologies finally targeted only those stores which were having cooling facility in consultation with team members and distributors. This was sure to impact the sale of Sister Ma chocolates and candies because only a few stores were having A.C. facilities in their stores in other states. The mouth of June raised another issue for Prime Technologies as a few customers complained about the bitter taste and some others found very small insects in the chocolates. Although, all these issues were related to improper storage by distributors and retailers, this problem because on severe headache for Prime. Although Prime had a health certificate from China and Indian governments for their products that they are fit for human consumption, it became very difficult for Prime to assure the quality of the product to customers. Initially not many complaints were received, but melting of chocolates was becoming a serious concern. But to add to the woes, gradually similar complaints started creeping in from other regions also. Looking at the issues and legal matters associated with food poisoning, Prime decided to bury the entire product. It was a huge mental and financial loss for Prime Technologies. The company thus wound up their business of importing chocolates and confined themselves only to their core business.

QUESTIONS FOR DISCUSSION

1. The imported chocolate and candy in Indian confectionery market is primarily impulse driven, extremely price sensitive and seasonal in nature. In this backdrop, what should have been the approach of the company so that it could have penetrated the market timely and effectively?

2. Critically evaluate the strategy adopted by Prime Technologies while entering into the venture of chocolate imports.

Subject: Chocolate; Diversified companies; Market positioning; Imports; Case studies

Location: India

Company / organization: Name: Prime Technologies; NAICS: 541511

Classification: 9110: Company specific; 1300: International trade & foreign investment; 7000: Marketing; 9530: Diversified companies; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 121-129

Number of pages: 9

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745600143

Document URL: http://search.proquest.com/docview/745600143?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 31 of 100

SECTION 3. FOCUS ON CORPORATE GOVERNANCE, BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL CHALLENGES - Chapter 12. Corporate Social Responsibility at Dow Chemical International, Chakan, Pune

Author: Khaladkar, M S; Kadam, M B; Muley, P P

ProQuest document link

Abstract:

This case puts Dow Chemicals International into the spotlight, to whom the Maharashtra Government had given about 40 hectares of grazing land for a research and development (R&D) facility in Chakan. The villagers say that they were kept in the dark about the 40 hectares of land that was allotted just for an R&D center. Over 10 villages in Khed taluka of Pune district have launched large-scale protests to save their grazing land. The villagers were also joined by various NGOs working in the area. Demonstrations, gheraos, were conducted continuously to build pressure on the government. This made the Chief Minister to look into the matter, and finally a decision was taken to shift the R&D center elsewhere. This case covers all the aspects of this issue, and raises a lot of questions and probable views about: 1. pollution, 2. development strategies of the government, 3. the rights of farmers, and 4. view of Dow Chemicals International.

Full text:

ABOUT INDIA

"India lives in her villages": A famous cliché which underscores the country's geographic identity. India has more than 600,000 villages, which have contributed significantly in charting the national identity of the country. Rights of villagers and their passion and love for their land and surroundings are always a sensitive issue. Whenever any industrial organization has tried to set up a plant in a village, it has been always a big issue when land acquisition, environment and future of the villagers are of prime concern.

ABOUT DOW

Dow Chemical Company is one of the largest chemical companies in the world, with annual sales of more than US $20 billion. It provides chemicals, plastics, energy, agricultural products, consumer goods and environmental services to customers in 157 countries, operates 115 manufacturing sites in 37 countries and employs more than 40,000 people.

SET-UP ACTIVITY

Dow India had signed an MOU with the Government of Maharashtra to set up a global R & D centre in a village called Shinde Varsuli near Chakan, about 25 km. from Pune. This happened in November 2007. The centre was expected to be operational by 2008. The company planned to employ 500 researchers by 2010. MIDC (Maharashtra Industrial Development Corporation) allotted 100 acres land.

ABOUT THE R&D CENTRE

With total investments of more than US $100 million, the centre had the capability of bringing a new product to the market from concept to commercialization. The R&D centre would have been an integrated centre, serving multiple clients and geographies. It had the capability to accelerate growth of the region through customer support, applications development and problem solving in the areas of water, paints and coatings. The government was confident that the new R&D facility would accelerate industrial growth of the region, consolidating Maharashtra's position as the number one industrialized state in the country.

THE TRUTH

There were reports that indicated of an unusual process of accelerating facilitation of normal procedures to give a green signal to the company, which still owes reparation to thousands of Indian citizens for one of the worst chemical disaster tragedies in history.

(Dow Chemicals had taken over Union Carbide at Bhopal.) There was enough initial evidence suggesting special favours that had lead to Dow's new plant in Pune.

1. The MIDC CEO approved Dow's initial application in 48 hours.

2. The State Pollution Board approved Dow's application in a record time of a few months.

3. The state allowed Dow to start construction on the site, way before environmental clearances were obtained.

VIEWS EXPRESSED BY DIGNITARIES

1. Agitation against 'Dow' has been intensified and needs to be spread all over the state - HBP. Prakash Maharaj Javanjal, President, Warakari Mahamandal.

2. If the Government is indifferent, a 'bandh' should be observed all over the state so that people in Maharashtra come to know about the adverse effects of the project.-HBP. Shivanikar Maharaj, President Warakari Fadakari Sanghatana.

3. Agitation should be carried on peacefully and with proper coordination.-HBP. Prakash Maharaj Bodhale, Akhil Bharatiya Warakari Mahamandal.

4. It is good that all chiefs and protagonists have gathered and were thinking over their welfare and adversities against them - Acharya HBP. Ramakrishna Maharaj Lahavitkar.

5. All should unite to fight for maintaining sanctity of all pilgrimage places in Maharashtra-HBP Jalgaokar Maharaj, Trustee, Paithan Devasthan.

6. It is the responsibility of everyone that till no decision is taken on the issue through discussions with the government; the agitation should not become violent.-HBP. Bapusaheb Maharaj Dehukar, Dehu sansthan

Resolutions were passed that a committee should be formed to coordinate with the government for expulsion of 'Dow' and an unconditional release of HBP. Bandatatya Karadkar; if the government did not accept these demands, to continue and intensify the agitation in more expansive and peaceful manner.

REASONS BEHIND - "REMOVE DOW, SAVE PUNE" MOVEMENT

The Maharashtra government had given about 40 hectares of grazing land to Dow Chemicals for an R&D facility. Villagers said that they were kept in the dark about the Rs. 400 crore facility. They had no clue about the project. Out of 65 hectares of grazing land, MIDC had encroached on about 40 hectares, which it had given to Dow, without the Gram Sabha's permission. Revenue records showed that 40 hectares was under the village Panchayat. In spite of all the talk of empowering Panchayats in the country, officials still have draconian powers.

This was the first clash against Dow. A Gram Sabha meeting was called and a resolution passed against the facility. The issue started agitating when activists found that there was no environmental impact assessment report for the project. Based on Right To Information documents obtained from Maharashtra Pollution Control Board, activists found that Dow had been given consent to use 20 chemicals, listed as hazardous under the Environment Protection Act,1980. Protests were growing by the day, and more and more activists in Pune were joining the fray. The nucleus of the agitations was that, going by the earlier association of the company with Union Carbide in Bhopal - the chemical killer that snuffed out thousands of lives in 1984, with many more thousands still bearing after-effects, -why had Dow been given another chance, and that too, so easily?

The Government of Maharashtra had allocated 100 acres of land to Dow. The land where permission had been given to start a chemical-based company, is in the midst of the Shinde Vasuli village, and not exactly on its outskirts. A major tributary of the Indrayani River runs just 1.2 kms away from this multinational company (MNC) compound. About 14,800 trees planted six years back by the social forestry department were hacked to make way for construction of the centre, say villagers. The 7/12 extracts of January 10, 2008 (a land ownership document), also mentions the number of trees as 14,800 on the plot, along with their number and names.

The villagers who were in extreme proximity to the chemical plant, claim they were kept in the dark about the nature of activities of the company. Hence, they have been at war with this MNC since Jan 2009. The site is enclosed by a pink and yellow compound wall, about five feet high. An unfinished building stands at the centre of the site with iron beams exposed to the elements.

Documents procured under RTI reveal that MPCB had given a 'go ahead' to Dow to use its manufacturing plant at Chakan, to produce at least 20 hazardous chemicals as per Schedule-I of 'Manufacture, Storage and Import of Hazardous Chemicals Rules-1989' under the Environment Protection Act-1986.

Sanjay Khandare, Member Secretary of the MPCB had granted Dow Chemicals International Pvt Ltd (Plot no A-1, MIDC Chakan, Phase-II, Taluka Khed, District: Pune) its consent for the manufacture of the following chemical products per month:

Polymers- 2,000 kgs

Catalyst organic/inorganic - 1,000 kg

Surfactants - 200 kgs

Aliphatic organic compounds - 500 kgs

Aromatic organic compounds - 500 kgs

Inorganic salts - 500 kgs.

The monthly quantity may not reflect the commercial nature of activity, but involves manufacturing chemical products, albeit for research and development.

For the manufacture of these products, the lists of chemicals which were likely to be used by Dow and given a nod by the MPCB were:

Gases. Air, nitrogen, hydrogen, helium, argon, methane, carbon monoxide, sulfur dioxide, ammonia, acetylene, hydrocarbon gases, hydrogen chloride and others (150 regular cylinders (total).

Solvents. Methanol, acetone, isopropyl alcohol, ether, petroleum ether, toluene, acetonitrile, THF, DMF etc (1000 litres per month).

Halogenated Solvents. Ethynyl dichloride, chlorobenzene, chloroform (500 litres per month).

Inorganic Acids. Nitric acid, sulfuric acid, hydrochloric acid, phosphoric acid and perchloric acid (500 litres per month).

Alkali. Sodium hydroxide, potassium hydroxide, calcium hydroxide, calcium carbonate, sodium carbonate, ammonia, calcium chloride (500 kgs per month).

Organic Reagents. Triethylamine, aliphatic/aromatic amines, phenols alphatic/aromatic acids, olefins, surfactants (500 litres per month).

Inorganic Reagents. Metals, metal oxides, metal nitrites/halides/carbonates, developed catalysts and oxidizing/reducing agents (250 kgs per month).

Commercial Polymers. Polyethelene, polypropelene, polyurethanes etc (2000 kgs per month).

Cryogenics. Liquid nitrogen and dry ice (2000 kgs per month).

General Laboratory Chemicals. Lewis acids, organic acids, inorganic acids, phoshazine bases, organic bases, inorganic bases, organic salts, inorganic salts (500 kgs per month).

Organic Sulphur Compounds. Alkyl sulphates, alkyl sulphides (100 kgs per month).

In case of accidents, the MPCB in its consent letter states - "Whenever due to any accident, or any other unforeseen act, or even if such emissions occur, or apprehended to occur in excess of standards laid down, such information shall forthwith be reported to the Board, concerned police station, officer of director of health services, Department of Explosives, Inspectorates of Factories and the local body. In case of failure of pollution control equipments, the production process connected shall be stopped."

A petrochemical expert and RTI activist stated that, "The authorities should not have given final approval until the Environmental Impact Assessment (EIA) report was ready. The report should be made by a well known agency and local representatives of the citizens should be associated with its preparation.

Experts further add "With the background of Bhopal, it is surprising that the government had not laid adequate stress on the safety aspect. Here too, the government should hold up final clearance unless the company carries out a Quantitative Risk Assessment (QRA), Escape Evacuation and Rescue Analysis, Hazard and Operability Study (HAZOP) and Hazard Analysis. There are industry norms for conducting each of these analyses/studies. The results of the hazard analysis and other studies are used to identify unacceptable risks and select the means of controlling, or eliminating them. The results are also used to update the existing Emergency Response Plan and Disaster Management Plan of Pune district and Maharashtra state. The importance of these studies cannot be over emphasized. Here too, it would help if local citizen representatives are taken into confidence while conducting these studies to allay their apprehensions.''

According to a panel of environmental experts who scrutinised the consent of the MPCB, the following were their comments:

"The list of chemicals given which are likely to be used at the Chakan plant include hazardous and dangerous gases as well as chemicals such as 1) gases - SO2, acetylene, HCL. 2) Solvents - Acetone, ether, nitrite compounds, halogenetic solvents, and inorganic acids.

"Thus the safety-related issues arising out of handling, accidents and incidents involving these chemicals require proper storage, handling and emergency procedures. For this an Environmental Management Plan should have been demanded by the MPCB.

"There is inconsistency in the application. While Dow had given eight categories of hazardous waste, the MPCB consent does not reflect so. "For any R&D centre - safety is the most important issue. When you are developing something new, the possibility of an upset or accidents had to be assumed with detail analysis of various probabilities. Safety vision in different scenarios is not given. The HAZOP (Hazardous operations report) has not been done. If an accident occurs, what is the preparedness? Details, like which is the nearest hospital, how much area would be cordoned off, what is the buffer zone and so on should be known.

"Government of India's Manufacturing, Storage, Import and Handling of Hazardous Chemicals Rules-1989 (MSIHC) as notified in EPA Act do not seem to have been adhered to. There does not seem to be adherence of the Chemical Accidents and Emergency Preparedness (Rules-2000) for which the company needs to submit on site and off site disaster management plans and that includes education of the neighbourhood residents. It is the fundamental right to know what is happening in the neighbourhood.

"As a precautionary principle - Environment Impact Analysis should have been done by the company on its own, when they claim they are a responsible corporate.

MPCB'S GREEN SIGNAL TO DOW FOR TRADE AND EFFLUENT TREATMENT

MPCB's consent letter of October 10, 2007 states that trade and effluent treatment by Dow should be as per stringent norms under Section-25 of the Water (Prevention and Control of Pollution) Act-1974 and under Section-21 of the Air (Prevention and Control of Pollution) Act 1981 and authorisation/renewal of authorisation under Rule-5 of the Hazardous Wastes (Management and Handling) Rules-1989 and Amendment Rules-2003 (to be referred as Water Act, Air Act and HW (Mand H Rules respectively).

Immediately a "Remove Dow, Save Pune" movement was started, which many local organizations also joined? Activists proposed a Lok Adalat for a face to face hearing with company officials, but were refused.

Over 10 villages in Khed Taluka launched large scale protests to save their grazing grounds from being converted into a R&D centre. Villagers dug the approach road to the Dow Chemical Centre.

Another adverse thing happened, because of the news of the chemical plant installation, the villagers dairy business started suffering losses of Rs. 8 to 10 lakhs in six months.

Stand of Government and Dow Chemicals:

1. According to the Collector of Pune - Grazing land is government land and it has been rightly and legally transferred by the revenue department to the industrial department and legally notified.

2. Dow Chemicals International is going to set up only a R&D centre and not a plant for manufacturing chemicals.

3. Dow Chemicals International is ready to give written assurances that the operations at the centre will not, in any way, harm the villagers, their cattle or land.

4. Dow Chemicals International had released large advertisements in vernacular newspapers of Maharashtra - claiming that its premises at Chakan, was an environment friendly research and development centre only, and not a manufacturing plant.

5. Dow in its Annexure- III of the application form, which talks about research and development (R&D) states: "The overall objective for core R&D is to carry out research and bring innovations to existing processes and products and at the same time develop raw processes and materials. The central themes for research will be on catalysis, organic and polymer synthesis, engineering and process science, new products development and analytical sciences and pilot plant facility. After MPCB gave its consent, the MIDC, in its letter dated February 2007, signed by the Area Manager, MIDC, Pune, states: "You will have to submit Environmental Clearance from MOEF, Government of India as per new notification." The MPCB and MIDC offices do not possess this crucial document

DOW'S COMMITMENT

In its press release of January 2008, Dow states: "The global R&D Centre in Pune will conduct basic research. The initial investment in this global R&D centre is expected to be over Rs.400 crores. The centre currently employs over 125 research scientists and is expected to employ 500 top-class scientists when fully operational by the year 2010. Some reports have wrongly associated Dow with the 1984 Bhopal mishap. Dow India wants to set the record straight by correcting misconceptions in this regard. The Bhopal gas tragedy occurred in Union Carbide Ltd (UCIL) plant in the year 1984. Dow Chemical (DOW-US) never owned, or operated the said UCIL facility in Bhopal in the year 1984. UCIL changed hands, and as a result, Union Carbide Corporation (UCC) ceased to hold any shares in UCIL since the year 1994. Several years after the tragedy, in the year 2001, UCC became a subsidiary of DOW-US, a totally distinct and unconnected corporate entity. UCC as of date continues to be a separate legal entity.''

Ravi Rao, Regional Manager of DOW Chemicals International Pvt Ltd, Pune, refused to speak to Intelligent Pune. An e-mail containing a questionnaire was sent to Nandkumar Sanglikar, Senior Leader, Public Affairs of Dow, Mumbai. On Tuesday, his colleague, Royston D'Mello stated that, "I am nor finding the right person who had all the information that you want. Please give me a few days more." When told about the deadline for printing, he stated "It was not possible to meet it."

DECISION

At the end, when lot of NGOS also supported the activists, considering the fears that chemicals produced at the R&D facility would impact the local environment, the Government of Maharashtra took a decision to shift the R&D centre to another place.

VIEW

Why 100 Acres?

Does an R&D centre require so much of land? A question that is raising eyebrows about its future intentions, is not answered in the documents scrutinized under RTI.

Considering the Dow Chemical case, as citizens of India, can we support either the government, or activists/villagers?

Basically, one approach is towards growth of region, and the other is towards rights of villagers and the environment.

Any such process should be very transparent from the beginning. Perhaps it is time to take a closer look at many of the small and mid sized facilities in places such as Vapi in Gujarat which is ranked as one of the most polluted cities in the world.

Subject: Social responsibility; Research centers; Chemical industry; Case studies

Location: Maharashtra India

Company / organization: Name: Dow Chemical Co; NAICS: 325188, 325199, 325211

Classification: 9110: Company specific; 8640: Chemical industry; 2410: Social responsibility; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 133-140

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600096

Document URL: http://search.proquest.com/docview/745600096?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 32 of 100

SECTION 3. FOCUS ON CORPORATE GOVERNANCE, BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL CHALLENGES - Chapter 13. Innovations in CSR from Global Business Leaders at Panasonic, Thomson Reuters, and Nanyang Business School

Author: Thiel, Monica

ProQuest document link

Abstract:

This case deals with Corporate Social Responsibility (CSR) issues faced by leading business houses Panasonic and Thomson Reuters with recommendations from Nanyang Business School in the current economic scenario. The inadequacies of the existing models are highlighted. The case study is based on interview responses from three global business leaders in Singapore. The interview responses demonstrate revision of current CSR models that implement cross-cultural ethics into the core business strategy of a global organization, promote open dialogue of individual and organizational values and mindsets, and implement preventive mechanisms, systems, and structures globally across sectors and industries. Two innovatory models are suggested. The first model is a concentric circle that has culture in the center, followed by personal and collective ethics, economic, legal, environment, and government domains. The second model is a concentric circle that has Human Resource Development (HRD) in the center followed by the domains in the first model. The revised CSR models may provide a global framework to drive CSR and set CSR standards for business worldwide. [PUBLICATION ABSTRACT]

Full text:

SECTION I

INTRODUCTION

Due to current varied CSR models and how CSR is defined and practiced differently in business and society worldwide, global CSR standards are vital for creating best practices of CSR and to increase the competitive advantage. This case study examines CSR in Singapore and China, and how innovatory CSR models can drive and set CSR standards worldwide. The innovatory models focus on a common global framework to strategically establish CSR best practices worldwide. Because most CSR business units in global organizations tend to focus on specific and narrow corporate communications of social responsibility instead of broadening the scope to set global CSR standards across sectors and industries, three global business leaders in Singapore who were familiar with CSR practices at Thomson Reuters, Panasonic, and Nanyang Business School were interviewed to investigate how CSR was practiced in Singapore and China. The participants' responses produced seven key lessons and five inadequacies of the current CSR models that resulted in two innovatory CSR models. The innovatory CSR models can be useful tools to help global organizations develop, implement, and drive CSR within the core global business strategy and set CSR standards worldwide.

DATA COLLECTION

To investigate how CSR is practiced in Singapore and China, individual structured interviews were conducted by email with three global business leaders in Singapore at Thomson Reuters, Panasonic, and Nanyang Business School. The participants were selected based on their global business, CSR, and HRD knowledge and experience. Although participant three from Nanyang Business School did not have the time to answer the interview questions, he suggested reading two articles that he had published. The articles led the author to create a second CSR model that added HRD as a CSR domain. Ten interview questions guided the case study.

The participants' responses indicate that the practice and responsibility of CSR should originate from the leadership, the individual employee, and the organization, instead of beginning with charitable contributions and stakeholders' demands. Furthermore, the participants' answers revealed that current CSR models were inadequate and require revision to set CSR standards worldwide. Thus, a global organization can integrate, practice, and drive CSR into the core global business strategy. This can lead to creating a CSR global framework and global CSR standards that link CSR to global organizations and across sectors and industries worldwide.

KEY CSR LESSONS LEARNED FROM PARTICIPANTS

Participants' responses revealed seven key CSR lessons learned. They are as follows:

Lesson No. 1: CSR Begins With the Individual

Participant one argues, "CSR as it is spoken about today is hyped up". The most basic premise is that as individuals and organizations, we need to take only what we need from the environment and buy only what we need". Furthermore, participant one contends that CSR is not necessary when we are "being sincere and follow up with actions, and review them regularly".

Participant two suggests that "effective implementation of CSR depends on many factors, the most basic of which include individuals having the desire to want to make their countries, their companies and their society a place to shine". Without an organizational culture of excellence, business strategy and competitive advantage can remain static. Thus, global leaders should align CSR with the individual employee, leadership, and organizational values throughout the core global business strategy.

Lesson No. 2: Effective CSR Practice is Collective and Collaborative

Participant two recommends, CSR practice requires a "community of matured individuals and groups contributing their best for the betterment of the society they live in". Participant one argues that the practice and communication of CSR is "to be sincere in our intentions and actions". Thus, it is a vital for business and society to "learn together, work together, and at the same time appreciate and respect individual and group differences and have the strength to solve conflicting views in a professional, mature manner". Overall, the practice of CSR requires global leaders and individual employees to simultaneously acknowledge cultural similarities, ambiguities, and differences when solving conflicting views. Therefore, complex global issues can be successfully resolved when global leaders and individual employees focus on achieving a collaborative global learning environment that respects differences and values integrity.

Lesson No. 3: CSR Can Improve Return on Investment (ROI) When Economic, Social, And Environmental Performance are Equitable

Participant two argues, "Many Chinese Singaporean businesses have a balanced approach to running a business enterprise, especially the very well established ones. Economic performance is as important as social contributions". Therefore, economic performance is vital to increase a country's competitive advantage and the quality of life. However, if global organizations focus solely on economic performance, this can lead to decreasing the quality of life and competitive advantage for the global organization and society because business, society, and natural resources are interdependent. Participant one recommends, "The most basic premise is that as individuals and organizations, we need to take only what we need from the environment and buy only what we need". Thus, CSR can increase return on investment (ROI) when a global organization integrates economic, social, and environmental performance equitably.

Lesson No. 4: HRD Can Drive Cross-Cultural CSR in A Global Organization

Participant three argues, "Unlike most countries, Singapore is dependent on human capital, being a small nation with almost no natural resources. Human resources have been identified as the single most important strategic capital in its strategic economic plan. Thus, Singapore has to continuously adapt its HRD strategies and practices in public and private sectors to keep pace with the domestic as well as regional/global environmental changes"(Osman Gani et al. 2009). Furthermore, Participant three recommends learning about "cross-cultural negotiation not just from the cultural diversity perspective of the United States but also from that of other multicultural, multiethnic societies"( Osman Gani et al. 2009). Consequently, "HRD professionals will have to equip themselves with crosscultural competencies and then help train other employees in effectively managing a diverse and cross-cultural workforce" ( Osman Gani et al. 2009). Thus, HRD can play a vital role in increasing the competitive advantage of global organizations through implementation of CSR best practices and policies, by providing cross-cultural trainings of CSR in global negotiations, global leadership, and global strategy because multiculturalism is practiced differently in many countries.

Lesson No. 5: CSR Requires Individual Ethics and Preventative Laws, Control Mechanisms, Structures, Systems, and Business Practices

According to Participants one and two, CSR cannot solely depend on individuals and global organizations with strong ethical values. CSR also requires enforced laws that prevent global corruption. Participant one argues, "We need to be sincere in our intentions and actions. We need to take actions to prevent exploitation of people, resources, and the environment. And if this is the primary aim, the companies who champion this will stand out".

Participant two recommends, "We first need to ask the question, what are the basic elements of corruption to take place?

The answer would be: (a) there must first be the need to corrupt; and (b) there must be the opportunity for corruption to occur.

If any of (a) or (b) exists alone, corruption cannot take place. Thus, the first step would be to ensure that situations prevent both the elements to come together". Participant two suggests beginning with how "business organizations could make a strong commitment to the issue of honesty in their corporate philosophy to develop a corruption-free mindset. In addition, participant two recommends, "the need and the opportunity to corrupt" can be prevented through "control mechanisms, systems, structures, and business practices". Thus, it is individual ethics, preventative laws, control mechanisms, systems, structures, and business practices that can successfully drive CSR into the core global business strategy of an organization and worldwide.

Lesson No. 6: CSR Requires Global Leaders that Model and Integrate Cross-Cultural CSR into The Organizational Culture

Participant one recommends that CSR requires "tight corporate governance". Participant two suggests that global leaders can model CSR with "mindset management through continual learning, education, and experience". Furthermore, Participant two suggests, "In my view, I believe that the foundations for an ethical management style may be similar in most companies in China and Singapore. The reason being that most Chinese management would still be greatly influenced by the basic ethics of business and also by the teaching of values which were very much derived from the teachings of Confucius, the teachings of Buddha, or any acceptable religious teachings". Participant three suggests, "Cross-cultural negotiation style, which is fundamentally concerned with the negotiation strategies and tactics employed by various managers from different cultures, is a culturally sensitive aspect of management"(Osman Gani et al. 2009).Therefore, in order to implement effective global CSR practices within a global organization, global leaders should model and integrate cross-cultural CSR into the organizational culture.

Lesson No. 7: CSR Requires Government Enforcement and Intervention

Participant one indicates, "The Singapore government is not a populist government. It will implement tough policies when needed. Singapore laws are tough, and I know and understand why they were put in place. If CSR refers to organizations being socially responsible, there are no laws addressing this. Other common laws are sufficient". Moreover, Participant two states, "The Singapore Government does actively promote campaigns and programs relating to CSR". Thus, government enforcement and intervention of CSR is vital for sustainable global businesses and society.

SUMMARY OF INADEQUATE CSR MODELS

Based on participants' responses, there are five inadequacies of the current CSR models.

First, there is much literature written about CSR in the United States and Europe. However, little is written about CSR in other countries. The most common western definition of CSR is to surpass the minimum regulatory framework of business practice. CSR is a complex concept because there are many global definitions of CSR. Nevertheless, despite its complex and unclear concepts, CSR is currently defined from a western perspective. Although "all ethnic groups are individual and collective" (participant three) (Osman Gani et al.2009). Social responsibility is vital in Western cultures due to an emphasis on the individual. Consequently, social responsibility is implicit within Asian society. "If CSR refers to organizations being socially responsible, there are no laws addressing this. Other common laws are sufficient" (participant one).

Second, some CSR models focus on meeting stakeholder requests (O'Riordan and Fairbass 2008). Instead, "Effective implementation of CSR depends on many factors, the most basic of which include: mindset management - through learning, education and experience, companies sincere desire to commit business activities to support CSR ideals, (and) individuals having the desire to want their countries, their companies and their society a place to shine" (participant two). Therefore, global organizations can integrate CSR into organizational leadership and culture rather than focusing on charitable contributions or becoming a victim of stakeholders.

Third, some organizational models implement CSR as a distinctly separate category, or business unit, instead of implementing CSR into the core global business strategy and organizational design (Van Marrewijk 2004). "Many Chinese Singaporean businesses have a balanced approach to running a business enterprise, especially the very well established ones. Economic performance is as important as social contributions" (participant two). Therefore, effective CSR should be integrated within the core global business strategy to positively impact society.

Fourth, the practice and responsibility of CSR should incorporate internal domains such as HRD and cross-cultural ethics of the individual employee, leadership, and organizational values instead of implementing and practicing CSR solely within external domains as in Schwartz and Carroll's three-domain approach of economics, legal, and ethical responsibilities (Shwartz and Carroll 2003). Participant two suggests that "effective implementation of CSR depends on many factors, the most basic of which include individuals having the desire to want to make their countries, their companies and their society a place to shine". Thus, without an organizational culture of excellence, business strategy and competitive advantage can remain static. Furthermore, because charitable contributions do not increase the competitive advantage and ethics of business and society CSR, must begin with the individual. Therefore, effective CSR requires internal and external CSR domains.

Fifth, although Carroll's CSR pyramid model provides a good framework for CSR,(Carroll 1991). His pyramid classification of CSR lacks the role of government, and he focuses solely on the economic, legal, ethical, and philanthropic domains from a western perspective of management ethics. In addition, his emphasis on organizations meeting society's expectations and charitable norms, can lead to further conflicts as previously discussed in the second inadequacy of current CSR models. Peck argues, "There is a crucial role for governments in facilitating the transition to an economy that is much more efficient, much fairer and much less damaging. Governments that lead and practice CSR values globally will be in a stronger position to set the agenda and establish advanced positions for their industries and their citizens. Countries that lag behind will inevitably face increasing competitive disadvantage and lost opportunity"(Peck et al. 2000). The Singapore government recognizes how CSR can increase competitive advantage for business and society. Participant one implies, "Singapore laws are tough, and I know and understand why they were put in place. If CSR refers to organizations being socially responsible, there are no laws addressing this. Other common laws are sufficient". Participant two states, "The Singapore government actively promotes campaigns and programs relating to CSR". Thus, government plays a vital part in effective CSR best practices and standards worldwide.

SUMMARY OF TWO INNOVATORY CSR MODELS

The two innovatory models derived from the seven key CSR lessons learned and five inadequacies of current CSR models. Compared to other CSR models, these models incorporate internal and external domains that meet at the global crossroads of commonality, without focusing solely on stakeholder demands or charitable contributions. There is no social domain because CSR begins with the individual. In addition, the innovatory models do not include a philanthropy domain because charitable contributions do not increase the competitive advantage and ethics of business and society. Thus, innovatory models embody and integrate internal domains of the individual, leadership, HRD, and the organization, into the external domains of society globally.

Instead of focusing on specific industries, CSR issues, and external domains, the innovatory models' internal and external domains provide a common global framework to establish CSR best practices and standards worldwide. The first model is a concentric circle that has culture in the center, followed by personal and collective ethics, economic, legal, environment, and government domains. The second model is a concentric circle that has HRD in the center followed by the same domains as in the first model. Due to the consistently changing global environment, HRD can be a viable and sustainable resource to increase competitive advantage with CSR best practices and policies and drive crosscultural CSR into the core global business strategy of an organization. The domains are interdependent and equitable. Overall, the two innovatory CSR models can drive and set CSR global business standards within an integrated and interdependent common framework worldwide.

CSR MODEL I

Culture Domain

Global cultural norms can differ with regard to decision-making. The participants' responses, No. 4 and No. 6, key CSR lessons learned, and the first inadequacy of current CSR models reveal that when people are flexible and put aside cultural differences and begin with basic cultural similarities and values people can "solve conflicting views in a professional, mature manner" (participant two). Murtha, Lenway, and Bagozzi(1998) suggest "that managers faced a need to unlearn a logic that evaluated integration and responsiveness as trade-offs before they could replace it with a logic of synthesis"(Murtha et al. 1998). Thus, effective CSR requires a global organization to be a global learning organization.

On the other hand, the participants recognize the necessity to understand cultural differences. Global organizations should begin with basic cultural similarities to move forward to cross-cultural differences and values. Participant three argues, "In cross-cultural negotiations, there is a need to examine cultural diversity in various multicultural societies and not just assume that cultural diversity in other countries is similar to cultural diversity in North America" (Osman Gani et al. 2002). Therefore, in order to interact successfully across cultures global leaders, managers, and individual employees should continually unlearn and relearn the similarities, ambiguities, and differences of other cultures and themselves.

Personal & Collective Ethics Domain

The participants overall responses, the fourth inadequacy of current CSR models, and No. 1, No. 2, and No. 6 key CSR lessons learned led to a personal and collective ethics domain. Participant three recommends, "All ethnic groups are individual and collective"(Osman Gani et al. 2002). Therefore, all ethnic groups can practice individual and collective ethics by starting with common ethics. Participant one suggests, "Deep down inside us, (ethics) must be the same. We may be different only in the circumstance of our lives" (participant one). Continual ethics training can "teach younger generations about the evils of corruption and the problems that corruption can cause to the individual, to organizations, to families and to society at large" (participant two). Global organizations should promote continuous ethics training to "prevent the need to corrupt" and to influence the "mindset and value aspects of people in society" (participant two). Furthermore, global ethics training can help to omit "the opportunity to corrupt" through the "development of control mechanisms, systems, structures, and business practices" (participant two).

Effective global CSR can succeed with "mindset management through learning, education and experience" (participant two). Petrick and Quinn(2001) suggest "good business judgment in the face of uncertainty and complexity that distinguishes the excellent from the average or poor business leader, and for that reason, judgment integrity is at the core of integrity capacity and business leadership accountability"(Petrick et al. 2001). Overall, the emphasis on personal and collective ethics can help to reveal individuals and groups that may be detrimental to organizations and society, while promoting individual ethics and collective ethics that can benefit organizations and society.

Economic Domain

The third inadequacy of current CSR models, No. 3 key CSR lesson learned, and participant one and participant two answers demonstrated how economic decisions play a vital role in the future success of the global organization and society. For these reasons, CSR requires an economic domain. Participant two argues, "as far as I am aware, many Chinese Singaporean businesses have a balanced approach to running a business enterprise, especially the very well established ones. Economic performance is as important as social contributions". Participant one implies, "All businesses are set up to make money, and the Singaporean Chinese makes money. Some Singaporean Chinese head clans that contribute back to their people. Younger Singaporeans have other ways of giving back; they give of their time, money, resources, etc." Overall, participant one and participant two view economic activity as foundational to all other domains because it is important to maintain a strong competitive position and to live a better quality of life.

Legal Domain

The legal domain derived from No. 5 key CSR lesson learned and consistent answers about necessary laws from participant one and participant two. CSR appears unnecessary or "hyped up" (participant one) because the Singapore government will implement tough laws as necessary. "If we take the several campaigns in Singapore from the early years, about 1960s, we had the Keep Singapore Green and Clean Campaign, we banned chewing gum as people were sticking them to lift buttons, and train doors. There was a No Spitting campaign too. You will smile if you understood why people spat in the first place. The Singapore government is not a populist government. If CSR refers to organizations being socially responsible, there are no laws addressing this. Other common laws are sufficient" (participant one). Singaporeans "follow strictly the rule of law as we conduct ourselves in the public arena" (participant one). Although participants one and two are not aware of any legal requirements relating to CSR, the Singapore government "does actively promote CSR campaigns and programs" (participant two). Moreover, CSR is implicit in the "common laws of Singapore" along with "tight corporate governance" (participant one). Therefore, strict interpretation, regulations, and enforcement are necessary to prevent global corruption and advance CSR worldwide.

Environment Domain

Participant one and participant two's answers about the environment and No. 3 key CSR lesson learned indicate that business impacts natural resources. Participant one suggests, "CSR as it is spoken about today, is hyped up. The most basic premise is that as individuals and organizations we need to take only what we need from the environment and buy only what we need". Participant two elaborates, "in Panasonic we do work closely with secondary schools to promote environmental management and we also recently held an exhibition to showcase Panasonic's products that are eco-friendly and thus environmentally friendly too". Natural resources are integrated with the economic and social decision-making of participants one and two to increase competitive advantage of the global organization and society. Thus, a global organization should integrate economic, social, and environmental performance equitably to increase ROI.

Government Domain

The fifth inadequacy of current CSR models, No. 7 key CSR lesson learned, and participant one and participant two responses about the role of government in CSR demonstrate the need for a government domain. Participant one argues, "The Singapore government is not a populist government. It will implement tough policies when needed". The Singapore government "does actively promote campaigns and programs relating to CSR" (participant two). Peck recommends, "there is a crucial role for governments in facilitating the transition to an economy that is much more efficient, much more fair and much less damaging. Governments that lead and practice CSR values globally will be in a stronger position to set the agenda and establish advanced positions for their industries and their citizens. Countries that lag behind will inevitably face increasing competitive disadvantage and lost opportunity" (Peck et al. 2000). Overall, the Singapore government plays an active worldwide role in promoting CSR practices collaboratively across global sectors and industries.

CSR Model II (Includes Model I Domains with the HRD Domain)

The HRD domain was added as a second CSR model due to participant three's response to the interview questions and No. 4 key CSR lesson learned.

HRD Domain

Although participant three did not have the time to answer interview questions, he suggested reading two articles that he had published. The articles led me to create a second CSR model that adds HRD as a CSR domain. In one article, participant three argues "HR professionals were found to be relatively weak in strategy formulation, partnering and consulting skills, which are essential in today's business environment. Other deficient areas include financial skills, cross-functional experience, project management skills and understanding of business"( Osman Ghani et al.2009). HR professionals should be required to have CSR global business skills, because not all global leaders will be knowledgeable about the concepts and effective best practices of CSR. Instead of organizations focusing on a CSR department, talented HRD professionals that have CSR global business skills can provide ongoing global CSR education and training to leadership and individual employees. Thus, continual CSR and global literacy assessment and training for leadership and employees can increase organizational performance, ROI, and reduce globalization's unintended consequences.

HRD can play a vital role in providing cross-cultural training in global negotiations and global leadership. Multiculturalism is practiced differently in many countries. Participant three agrees with Osman Ghani et al. ( 2002) who suggests examining "crosscultural negotiation not just from the cultural diversity perspective of the United States, but also from that of other multicultural, multiethnic societies". Because not all global leaders may be sufficiently knowledgeable about the concepts of global literacy, HRD can be useful in providing best practices of global CSR that reveal subtle differences of multicultural societies and cross-cultural communication. Overall, HRD can be a useful tool to develop and implement CSR practices on an individual and organizational level.

When HRD and CSR are aligned into the core global business strategy instead of a CSR business unit, HRD can play a vital role in improving and achieving global strategy, change management, and organizational performance. Furthermore, instead of global organizations focusing on a CSR department, CSR and global business skilled HRD professionals can integrate CSR into the core global business strategy. Additionally, HRD can provide ongoing CSR education and training, and measure the business impact of global leaders, managers, and individual employees to increase ROI.

CONCLUSION

Two innovatory global CSR models were developed as a result of participants' responses, seven key CSR lessons learned, and five inadequacies of current CSR models. The innovatory CSR models are not considered to be inclusive of all possible global business practices, and the models do not attempt to classify activities of individuals and organizations solely within a CSR model. However, innovatory CSR models can assist global organizations to successfully manage changing global conditions when the organization is viewed as an interwoven and dynamic whole that generates continuous knowledge, and bridges its systems, processes, and structures that are constantly transforming into an internal and external common global network.

Philanthropy and stakeholder requests do not increase the competitive advantage and ethics of business and society. Therefore, innovatory CSR models can be a useful tool to help global organizations develop, implement, and drive CSR within the core global business strategy and set CSR standards worldwide. Because business and society have a reciprocal relationship, people can use their money to increase business competition, education, and other quality of life concerns when people desire a better way of living in the present and in the future, that can result in "a place to shine" (participant two). CSR values, not stakeholder demands or charitable contributions from global business leaders, managers, and individual employees play a significant role in reducing globalization's unintended consequences, and increasing the competitive advantage of global organizations and society. Furthermore, instead of global organizations solely responding to stakeholders' requests and meeting society's charitable norms, global organizations can become a resource to shape and advance cross-cultural CSR best practices and policies worldwide. In sum, innovatory CSR models integrate internal and external CSR domains that can create a global common framework to set CSR standards and achieve worldwide business and society excellence.

Subject: Social responsibility; Interviews; Innovations; Appliance industry; Newspaper industry; Colleges & universities

Location: Singapore

Company / organization: Name: Panasonic Corp; NAICS: 333415, 335222, 335224; Name: Thomson Reuters; NAICS: 511110, 511140; Name: Nanyang Technological University-Singapore; NAICS: 611310

Classification: 8306: Schools and educational services; 8690: Publishing industry; 8650: Electrical & electronics industries; 9179: Asia & the Pacific; 2410: Social responsibility

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 141-157

Number of pages: 17

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600164

Document URL: http://search.proquest.com/docview/745600164?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 33 of 100

SECTION 3. FOCUS ON CORPORATE GOVERNANCE, BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL CHALLENGES - Chapter 14. Eco Gas Impex Pvt. Ltd., New Delhi: Green Visionaries and Safe CNG Retrofitters

Author: Narasimham, V L

ProQuest document link

Abstract:

The article has been prepared based on the interactive sessions with a middle-aged proprietor, Mukesh Garg, a specialist in the CNG retrofitting business of Badarpur, New Delhi. Being a frontrunner in CNG retrofitting, Garg with his transactional leadership qualities understands the intricacies of employee work-outs on safety mechanisms, sounds philosophical on opportunistic growth of the workforce, optimistic about releasing Indian made CNG retrofitting kit with 'Ecogas' as a trade mark, and further argues that positive competition in CNG retrofitting business is a step in conceptualizing a pollution free nation. With a workforce of 18, all male, EIPL is located strategically on the main New Delhi-Mathura Road. The progress of EIPL has been slightly on the downside in the first quarter of 2009, but very soon business should thrive on new versions released by Maruti and Hyundai. The case elaborates on proprietorship ethics, automobile workshop culture, mentoring, strategic CNG retrofitting, safety and standard norms ISO15500, and constraints for Indian CNG-kits. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Since the introduction of alternative fuels into the global fuel markets in the mid 1930s, Italy2, selected nations in Asia including China, India and Pakistan which had not recognized the potential opportunity for these fuels until the 1990s, and were dormant till the end of 20th century for reasons like lower and middle income population to a large extent in these countries constrained by limited purchasing capabilities, restrictive stimulation in the automobile industry in terms of business growth, reluctant research and innovative approach in selecting and manipulating alternative fuels to strengthen self reliant capabilities of the nation before compressed natural gas (CNG) took a long leap in transforming Asian, particularly Indian consumers with its economical, efficient and low pollutant emission characteristics in terms of particulate matter, nitrogen oxides (NOx), carbon monoxide (CO), non-methane organic gases/reactive organic gases, or other air toxics. For different reasons, limited vehicular density, mediocre commercial vision about the automobile industry by ruling governments, lacklustre and sluggish industrial reforms in foreign direct investment policies, and above all, affordability of conventional petroleum based fuels at government controlled, regulated and/or subsidized prices even by affluent consumers could possibly have held back the application and prolific business opportunities for alternative fuels in those times. On the other hand, a few European nations and a Pacific island nation like New Zealand benefitted by energy reforms by using unconventional fuels and suitable manipulation with the automobile technology, thereby yielding desired results in some cases, and mixed responses after long usage in others. In recent times, however, the national urge to be part of the global automobile race, India has been positive while bringing in economic measures and reforms in the automobile industry targeting globally popular and extremely well performing automobile brands. Further, by embracing land reforms, the country took initiatives in extending strategically beneficial land available for major automobile players which enabled them set up their own assembling/exclusive manufacturing units. Some of the players that have came to Indian shores for their business ventures are Suzuki, Honda, Toyota, Hyundai, and others. With government participation in Suzuki, successful models of Maruti Suzuki have been running on Indian roads for more than three decades and in other cases, professionally demanding automobile industries have set up hubs of their automobile plants either through joint ventures, collaborations, or exclusive foreign direct investments. On the other hand, the conscious approach by consumers in possessing vehicles as status symbols has helped consumer awareness on automobile variants, recognising comfort and economy, and treating them as utility tools in routine jobs. Further, improved affordability by consumers, their perception of possible hikes in conventional fuels at short notice, have been carefully investigated by young CNG retrofitting entrepreneurs like Mukesh Garg, proprietor, Eco Gas Impex Pvt. Ltd (EGIPL). Garg, while considering eco gas as an EGIPL brand product, simultaneously took his enterprise of retrofitting services into other neighboring states of the NCR. The synergy of consumer knowledge, volatile fuel prices, upsurge in the number of fuel refilling stations (largely set up by Indraprastha Gas Limited and its affiliates in New Delhi and NCR), an efficient distribution network for successful Italian and German brands of CNG kits have enabled greater acceptance in using alternative fuels. The successful evolution of EIGIPL is shown in Exhibit 1 which includes external elements that have played an important role in the growth of the retrofitting business of the NCR and its neighboring geographies. With success stories percolating into other parts of the nation, different state municipal corporations of India (e.g.Vijayawada, Andhra Pradesh-India) have started directing transport operators to mandatorily start converting all modes of public transport systems into CNG based fuel users as an immediate solution to minimize the impact of vehicular related pollution and subsequent health problems. With the greater acceptance of alternative fuels, select global automobile players have introduced dual-mode energy based operations where, both conventional and alternative fuels particularly CNG can be used for operational convenience. Similarly, retrofitting units have also been consciously giving a choice between conventional and alternative fuels where, switching over from one type of fuel to the other is suitably performed. At times, major automobile players have started improvising their widely accepted faithful variants in the mid-size category for fuel efficiency complying with the pollutants discharging norms of European nations and Asian countries. Bharat III and the forth coming Bharat IV stages that are specific to Indian automobile units in terms of emissions have been met by major global players with an impressive annual festive introduction of new models in dual fuel energy mode.

The case study on Eco Gas Impex Pvt. Ltd. (EIPL), New Delhi is a step in further mapping the dynamics of progressive business of widely dispersed retrofitting units in the NCR. These units while being new compared to other established automobile related businesses of distribution, spare parts vendors, repair or renovating units, successful kit installation has been well received by consumers. It may be an academically enriching exercise to learn about the role that perseverance plays in the success of new business ideas and the case examines closely the role of visionary leadership in championing CNG fuels as a long term sustainable solution for the growing demand for conventional fuels. Further, the study identifies strategic geographic preferences among new entrants for establishing retrofitting business units in the neighborhood of NCR, Ghaziabad (Uttar Pradesh), Gurgaon and Faridabad (Haryana-India) or in other parts of the country. An evaluation the nature of retrofitting units that are dispersed, but typically settle into cluster formations would be an interesting reason while understanding the involuntary nature of humans while preferring and following successful business ventures by securing the same geographical space that was chosen by their former colleagues or new entrants. This study also evaluates future challenges in the growth of the retrofitting business because of recent initiatives by automobile manufacturers by releasing factory fitted kits for mid-sized vehicles. This case study could also be an extrapolation for the imminent success of hydrogen as a fuel which may be introduced as a solution to the fuel crisis.

LEADERSHIP IDEOLOGIES

Being an expert in automobile spare parts distribution with M/s Delhi Auto Spares (DAS), Garg has been a legitimate leader while setting up Eco Gas Impex Pvt. Ltd. (EGIPL). His socializing qualities also enable him to work with fellow workers, customers, and government agencies. Aligning with fellow retrofitting proprietors has also inspired Garg in pursuing his dream project of developing an exclusive retrofitting community portal with all relevant information that could help customers while negotiating their requirements. Further, mapping of retrofitting stations in the entire NCR region and other parts of the country with an appropriate database like contact information, expertise, key indicators of performance; annual reports etc. could very soon become a reality because of the efforts of Garg and his group. Exhibit 2 highlights different ideologies of leaders, and proprietors as this case identifies Garg as a person with client service ideologies when he commands a subordinate that he should listen and a make note of all the retrofitting related queries of the client, attend in time and tell him about the status simultaneously with a note to himself in his cabin. During conversations with clients, Garg excels in extending all types of advice on the retrofitting business to the from amateur to enthusiastic and serious entrepreneurs. The objective and emphasis on the interests, rights and dignity of the service recipients is commendable and mentoring fellow workers with the same philosophy is a strong point of Garg.

3 'i' business leadership traits: Insight, initiative and integrity are the 3 'i' business leadership traits identified during conversations and further discussions may also help in mapping other traits Garg could possess. Being the very first entrant into the CNG retrofitting business, the business initiative and business insight are commendable traits. The integrity and dependable character of Garg has been demonstrated for from approvals obtained from governmental authorities for successfully carrying out retro-fitment using multinational CNG kit brands at his own workstations environment.

WORKPLACE ENVIRONMENT OF EGIPL

Workforce development has been demonstrated in many ways (see Exhibit 3), where, workshop related businesses flourish largely from situation based learning, preemptive intellectualness in certain cases, and above all, situation based evidence, failures, verbally communicated cases, shared repertoire of actions, concepts, discourses, styles, and/or gestures are some of the methods adopted while creating a reliable workforce at EGIPL. Further, the workforce regularly attends safety and secure retrofitting demonstrative workshops or training modules from time to time. Retrofitting workshop of EGIPL is a workplace in itself denoting a natural environment for the workforce that has been socially constructed through interaction among participants. It is well known that workplace studies consider work as an activity in which the objects and subjects present in the setting constitute and give sense to the activities that arise from their interactions. Detailed analysis of such interactions that take place seek to take account of the 'taken-forgranted' and tacit routines.

EGIPL - knowing across communities: As it has been said, by experience we transform experience into power, EGIPL has demonstrated the concept of 'knowing' with 'doing' for the last eight years of their retrofitting services. EGIPL has attained enough mature strength before they explore developing indigenous CNG kits either through foreign collaboration or through equity participation in the next couple of years. With positive leadership at the helm of affairs, it could be a reality very soon that indigenous CNG kit development will be on Indian roads.

EGIPL's retrofitting business input - output market: CNG-kit distributors, automobile service agents, financiers, environmental supporters, academicians etc. are the select input market communities, whereas the beneficiaries of the post retrofitting users, insurance consultants, automobile dealers etc., are the select output market environment communities. EGIPL being an exclusive retrofitting unit providing services in different parts of the NCR and other neighboring pockets, indirect business input and output is also possible that would have a dynamic impact.

EGIPL in competition: Conceptually, identifying a fair market share in CNG retrofitting has been already done by EGIPL, and hence, competition could have already been distributed at all its subsidiary places. Secondly, it has been identified through interactions that acquiring a sufficient share, maintaining the same with all necessary protection and aggressiveness has been under implementation. On the other hand, retrofitting business needs competition in order to reduce the expenses of retrofitting and pass on the benefits to the final user as would be principle in any service industry.

EGIP-EFFICIENCY VERSUS EFFECTIVENESS

Through interactions with Garg on the efficiency of EGIPL, we could identify the internal efficiency that has an edge over external efficiency, for example, in receiving necessary permits, infrastructure developments, governmental encouragement or campaigns by environmentalists on the effective usage of CNG as an alternative fuel. On the other hand, the eagerness of the consumer or the end user has been more active in pursuing EGIPL and pushing for better internal efficiency. The effectiveness of the retrofitting job by EGIPL has been largely successful except for a minor number of re-retrofitting cases. Internal efficiency has been achieved through resolving all administrative issues like wages, bonus, festival rewards and compensations for the workforce which is unwell. Similarly operational efficiency has been achieved by EGIPL through workforce training, and by targeting the Human Experiential Space1 in organizing workplace learning. Knowledge generation is another tool that has been utilized from the experienced workforce for the amateur and new entrants in the of retrofittinsg business.

EGIPL-tradeoff between retrofitting business/aesthetic workplace: This is one of the domains where EGIPL has limited interest and resources to create workspace neatness, hygiene, environmental friendly, spacious premises for successful joint ventures with foreign collaborators while releasing indigenous CNG-kits. As the dominant prerequisite for EGIPL is in CNG retrofitting, the limited charges that it collects (between US $80-US $100 per retrofitting), the volatile business in recession times, Exhibit 4 shows a declining trend for the year 2008-09, and incurring expenses ranging between US $1000 to US $1200 towards face lifting or renovation of the premises would be financially unadvisable. The resolve of the workforce to bear certain inconveniences is commendable during the slow progress of retrofitting, post stabilization of crude oil prices.

EGIPL in asset conservation: In order to gain business opportunities, the strategic location could be of greater importance than asset development. EGIPL has been executing a strategy where it has employed a limited workforce, gladly accepting job shifting of a select workforce, encouraging extended work hours and compensating for the limited but excess work hours and further limiting its workshop to the required space.

EGIPL as a self beneficiary: EGIPL has been successful for a limited but a continuous period of three years (sufficient data was not available for exhibits) except during crude oil price stabilization and recession periods. It emerged as a conscious campaigner for the safety of the end user and has been supporting the customer with a manual of safe application of the vehicles after being retrofitted with CNG-kits. Also, it has been communicating with the user through its own web portal on CNG compliance. Some of these activities have been indirectly projecting EGIPL as lead CNGretrofitter of the NCR, and also creating awareness among consumers far away from its working premises.

EGIPL IN ENTIRETY

EGIPL has been a service organization where, many tangible and intangible elements are present in their entirety (Exhibit 5), and navigating through different paradigms makes it as an organization that exemplifies greater number of conceptual and theoretical knowledge. Irrespective of its potential business strengths in terms of turnover metrics or market share value, potentiality in acquisitions and mergers, EGIPL's organizational dynamics are as good as in any established multinational business organizations. Understanding the CNGretrofitting implicitly, regardless of what it is in terms of high end business and statistical metrics, one would gain insights into other service organizations, regardless what they would be doing.

CONCLUSIONS

Developing a business case on the service sector, particularly on an automobile CNG retrofitting business house would be challenging because of its youthful nature, incomplete business life cycles, and volatile because of fluctuating crude oil prices. Further, the observational data has been an asset in deriving different organizational, particularly, workspace related dynamics and workplace learning textures. Leadership ideologies are beneficial to many business houses, and understanding an individual proprietor in his natural entirety is testing the importance of social networking for a successful service organization. Workplace aesthetics are the new parameters in understanding business growth and potential makeshifts in business through collaborations and joint ventures with overseas partners.

Subject: Compressed natural gas; Retrofitting; ISO standards; Natural gas industry; Sustainable development; Case studies

Location: India

Company / organization: Name: Eco Gas Impex Pvt Ltd; NAICS: 211112

Classification: 9110: Company specific; 1540: Pollution control; 8510: Petroleum industry; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 158-166

Number of pages: 9

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745600210

Document URL: http://search.proquest.com/docview/745600210?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 34 of 100

SECTION 3. FOCUS ON CORPORATE GOVERNANCE, BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL CHALLENGES - Chapter 15. The Organic Food Industry: A Turning Point in the Food Trade

Author: Anand, Ritu

ProQuest document link

Abstract:

There has been a sustained increase in the demand for fast food, snacks and convenience food over a number of years. Consequently, with rising global obesity, there has been a gradual demand for food that is neither processed, nor produced using genetically modified organisms. Ethical consumerism involving human health, animal welfare, environmental and ethical trade worldwide, more so in the West, have given rise to vegetarianism and the organic food industry. Organic food is perceived as food without "chemicals" and "growth hormones", food that is "not intensively" produced and is grown as "natural". This growing trend towards organic food and vegetarianism is more significant in Western countries with alarming obesity levels and significantly less in countries like China and India, and almost negligible in Africa and the Middle-East despite obesity being an epidemic there. The share of organic food sales amounts to 1-2 percent of the total world food market with Western Europe being the largest regional market. This case study outlines the spread and growth of organic food globally, in the wake of ethical consumerism. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Food is big business in the globalised world. Also, a large number of recent food scares, as well as concerns for the environment and unethical practices, has led to the growing demand for organic, fair trade, vegetarian and additive-free foods. The share of organic food sales amounts to 1-2 percent of the total world food market, with Western Europe being the largest regional market. However, it is becoming obvious that a turning point has come in the food trade, with a growing trend towards organic food and vegetarianism becoming increasingly significant in Western countries with the alarming obesity epidemic, and significantly less in countries like China and India, and almost negligible in Africa and the Middle East. Therefore, the organic food industry with a focus on "Green consumerism" can be seen as a new business paradigm in the years to come in the food trade.

GLOBAL ORGANIC FOOD INDUSTRY - MARKET OVERVIEW

The organic food market generally operates at a high volume-low margin level. The key segments of the global organic food market includes fruits and vegetables, prepared foods, dairy products, beverages, bread and grains and meat, fish and poultry (Global-Food, Datamonitor, 2008). Organic farming does not make use of chemicals, and produces food in a natural environment with standard guidelines, and farmers play a vital role in ensuring food quality and food safety. Large quantities of organic food are sold through farmers markets. Organic food markets rely on forward integration and since here the supplier is the farmer, therefore enhances supplier's power. In the organic food market, supplier power is moderate. Tesco, Kroger, Albertson's and Carrefour often act as direct distribution channels for organic foods (Global-Food, Datamonitor, 2008).

GLOBAL-ORGANIC FOOD

The global organic food market has generated total revenues of US$ 52 billion in 2008, wherein sales of fruits and vegetables have proved to be the most lucrative with 36 percent of the overall market share and meat, fish and poultry have been least lucrative with 5.9 percent market share. Albertson's, Kroger, Carrefour and many more leading retailers, as well as players in the global organic food market operate supermarket/hypermarket chains and retail outlets. Most of the leading players are very identical in terms of products, but the variation that they offer acts as a subject of distinction between them. According to the report of Datamonitor, 2008 on 'Global-Food', organic food market can be analyzed taking manufacturers and processors of organic foods as market players, and retailers such as supermarkets/hypermarkets as buyers. In the global organic food market, these large retailers rely more on end consumers. Therefore, maximum business comes from consumers who are relatively small buyers, as compared to non-organic food. In the global organic food market, suppliers are small Organic farmers, and buyers are consumers who purchase organic food vis-à-vis non-organic food for health benefits.

According to recent research on global organic food market segmentation region wise, America's global organic food market leads with 49.10 percent market share, followed by Europe with 47 percent of the global organic food market value, showing a significant trend towards organic food. The contribution of Asia-Pacific has been lowest with merely 4 percent market share of the global organic food market.

VISION/OBJECTIVES

The global organic food industry represents one of the largest markets and is expected to increase to US$ 85. 1 billion by 2013 (Datamonitor, 2008, Global-Food). According to various empirical studies worldwide on consumer attitudes towards organic food and vegetarianism, it is seen that the number of vegetarian consumers will significantly increase with the growing organic food market, and this would indicate a turning point in consumer food choices and the international food trade. The objective of the organic food industry is to bring "Green Consumerism in the Food Industry" and promote natural, additive free, fresh and organic food for the benefit of consumer health , environment and animal welfare.

LEADING PLAYERS IN THE ORGANIC FOOD INDUSTRY

Wal-Mart Stores (Wal-Mart) is a US based largest retail company in the world, that has introduced international formats of retailing throughout the world. Although Wal-Mart operates its business under three business segments: Wal-Mart Stores, Sam's Club and the International segment, the company has also got a fourth, non-operating segment named, 'Others' which comprises unallocated overhead items. Wal-Mart operates more than 1,000 discount stores in 47 states in the US, and its international segment comprises of the company's wholly owned subsidiaries in Argentina, Canada, Puerto Rico and the UK (Global-Food, Datamonitor, 2009).

Tesco is one of the largest food retailers in the world, operating 3,263 stores. The group operates through multiple store formats, including Extra, Superstore, Metro, Express, hypermarkets and has operations in the UK, and other European countries and Asia (Global-Food, Datamonitor, 2008). Tesco operates roughly 95 stores in Ireland, 280 in Poland, 101 in the Hungarian market, 84 in Czechoslovakia,48 in Slovakia,30 in Turkey, 47 in China,109 in Japan, 370 in Thailand, 91 in South Korea and 19 in Malaysia (Global-Food, Datamonitor, 2009). Its stores stock approximately 40,000 food products. In addition, the group also sells nonfood items including electrical goods, clothing, health and beauty, home entertainment, kitchen utensils, stationary, soft furnishings and seasonal goods.

Sainsbury is a UK food retailer, and also deals in financial services. It has operations throughout the country. Its business comprises of Sainsbury's 504 supermarkets, 319 convenience stores and Sainsbury's bank (Global-Food, Datamonitor, 2008). Sainbury's group of business comprises two main segments. The first segment is food retailing. The food retail segment serves over 16.5 million customers a week through a network of 823 stores including 319 convenience stores and 504 supermarkets (Global-Food, Datamonitor, 2008). Sainsbury's supermarkets offer about 30,000 products which include fresh food products, food and grocery products and non-food items as well.

A RETURN TO TRADITIONAL FOOD

Societal changes and worldwide nutrition transition over the past few decades has been consistently driving the obesity epidemic across the globe. Eating out and relying on convenience processed food and fast food in time starved societies with reduced physical activity, have led to obesity rates that have risen three - four times, or more, since the 1980's in some areas of North America, the United Kingdom, Eastern Europe, the Middle East, the Pacific Islands, Australia, China and India. Globally, obesity has reached epidemic proportions with more than one billion people overweight, and at least 300 million of them clinically obese which is a major contributor to the global burden of chronic disease and disability according to the World Health Organization.

Obesity and overweight pose a major risk for serious diet-related chronic diseases, including type 2 diabetes, cardiovascular disease, hypertension and stroke, and certain forms of cancers. According to the WHO, the US has the world's highest obesity rate, with 34 percent of the population of 15 years old recording a BMI of 30 or more in 2005, followed by Saudi Arabia and South Africa. The lowest rates of obesity have been recorded in the Asia Pacific, due to significantly more healthy diets in this region. In general, obesity and bad eating habits tend to be associated with less affluent socio-economic groups in developed markets, whereas in emerging economies like China and India, obesity has been a problem for the middle class and the newly rich, and is now spreading in urban areas as well.

Growing concerns over unhealthy food, fat content, exotic processing has highlighted the importance of a balanced diet, nutrition and healthy eating habits. The frequency of eating out is therefore influenced by knowledge and opinion about the nutritional content of food and processing, suggesting that consumers are now demanding health as well as convenience. Consumers have become increasingly resistant to the use of chemical additives in food, preferring the idea of 'natural' ingredients, or products, that are described as 'additive- free'. Therefore the complexity behind convenience fast food over the years has been silently tracing the demand for fresh and unprocessed food.

Globally, the trend towards vegetarianism is increasing because of the fact that the number of vegetarians is increasing in view of rising food related health problems. This indicates a turning point in food and eating habits of the consumers of convenience food (fast food and processed food) to traditional food (fresh food and home cooking). A health conscious consumer feels that it is really important to eat food that is as close to its natural state as possible-freshly picked in season which has not used chemicals, antibiotics, growth hormones, artificial additives and preservatives and has been cooked at home in a neat and hygienic kitchen. Consumers globally show interest in food purchases and meal preparation from scratch, so that they can ensure quality in meal preparation, which is not so in case of eating out. The quality of the food inside the kitchen of a fast food restaurant, or eating out, cannot be guaranteed.

GREEN CONSUMERISM WILL BECOME THE BUZZWORD

Fast food has become a high profile and increasingly contentious issue in current concerns surrounding food safety, food quality, and obesity and associated health problems (Jones et al. 2003). Research indicates that, although health and food safety concerns are the main motives for organic food purchases, ethical concerns, specifically in relation to standards of animal welfare and environmental safety also play a significant role in the decision making process. Globally, this environmental and health awakening has raised several questions on corporate social responsibility of the food industry in general. This ethical consumerism worldwide has been questioning corporate and business ethics being followed in the food industry in the interests of consumers and environment safety. Consequently, this has led to "Green Consumerism". According to the Soil Association Organic Market Report, 2006, organic food is produced according to a set of principles and standards concerning issues like pesticides, additives, GMOs (Genetically modified organisms) and animal welfare and sustainability. In terms of environmental benefits, organic farms naturally promote biodiversity since the lack of herbicides and pesticides encourages wildlife. Analyses of consumer attitudes worldwide reveal that they would like to purchase organic food which is environment friendly and healthier vis-à-vis non-organic foods. Consumers want food that is produced as 'naturally' as possible with nutritional values, free from transfats, pesticides, GMOs and most additives. Consumers are also willing to spend significantly more for the food that gives additional quality and safety. The following graphic shows global organic food trends from 1998-2008.

Consumers prefer to eat organic food mainly for health reasons. A turning point in nutrition has led to new preferences in global food market as well. According to the research report of Datamonitor 2008, it is visible that the trend towards organic food is trying to make a place for itself in the global organic food market. According to research, vegetarianism is increasing in popularity with more than 12 million vegetarians in Europe.

According to the report on Green Consumerism Shifts in Attitude (2002) published in the website of the food navigator, the UK and Germany have the greatest proportion of people who reduced meat eating by 46 percent and 44 percent of their respective populations and even countries not noted for their vegetarian populations, such as France and Spain, have significantly large number of people who have reduced meat intake (25 percent). Many green markets have become huge success stories. Globally, a trend towards organic food and vegetarianism has begun. The constantly growing global organic food market with major business from fruits and vegetables segment is a witness to the trend towards organic food and vegetarianism. Rising proportion of fruits, vegetables and dairy products clearly indicates the trend in consumer requirements globally.

Global trends for organic food and vegetarianism is visible from the fact that the proportion of business from fruits, vegetables and dairy products in the global organic food market from 2002-2008 has been increasing significantly in comparison to meat, fish and poultry. A vegetarian diet generally does not include meat, fish or poultry, while some diets also exclude dairy products. According to the American Dietetic Association, there are three classifications of vegetarian diets. The first one is Lacto-ovo-vegetarian that includes dairy products and eggs, the second is called lacto-vegetarian that includes dairy products but no eggs, and the last is Vegan that includes no animal products of any type. In comparison to meat, fish and poultry, the proportion of business from fruits and vegetables excluding dairy products is also increasing significantly in the past few years. Green markets rely on consumers who strongly believe in ethics and values. The future direction of global eating habits will depend largely on efforts by governments and consumer awareness across the globe for fresh and healthy origin of food even though it less vis-à-vis fast food and convenience processed food, there is demand for organic food.

CHALLENGES FOR THE GLOBAL ORGANIC FOOD INDUSTRY

The main substitutes to the organic food market include non-organic versions of products in the key segments, which are categorized as : fruits and vegetables, prepared foods and others, dairy, beverages, bread, grains and meat, fish and poultry (Global-Food, datamonitor, 2008). The benefits of non-organic substitutes in relation to health are somewhat negligible, vis-à-vis organic products. However, the price of such substitutes is relatively low which gives rise to strong competition. Also non-organic products, most of the times, because of lower prices and rigorous promotion, gets significant shelf space in competition to organic food. Organic food, especially vegetarian products are under-represented in supermarkets and discount stores in comparison to non-organic food products. The manner in which fast food companies and processed food companies are promoting their products, makes them available and also occupy significant shelf space in stores, superstores and hypermarkets. Surprisingly, in the case of organic food and vegetarian food, it is the consumer who asks for it. Organic food lacks marketing and promotion at the point of sale/purchase in comparison to fast food and other processed food. Consequently, this makes them less popular vis-à-vis non-organic foods.

In addition to rigorous promotion strategies adopted by the fast food and processed food companies, they are also targeting schools, children and young consumers by adapting their menus to suit local tastes and preferences across the globe. Multinational fast food chains such as KFC, Big Burger, McDonald's, Domino's, Pizza Hut and others are segmenting their product portfolio, to capture consumers in different countries throughout the world across diverse income levels and lifestyles. The food chains are devising strategies in order to meet wider consumer requirements. The strategy is an attempt by some top retailers like McDonald's, KFC and many more to increase profit margins by catering to wider consumer segments with variations in food menus after customizing them to suit local tastes and preferences across the globe (Think Global, Act Local). The extent to which fast food dominates eating habits across the world can be assessed by the fact that McDonald's which is the world's leading food retailer, has more than 30,000 restaurants in 121 countries serving 46 million customers each day.

Fast food is one of the world's fastest growing food types and accounts for roughly half of all restaurant revenues in the developed countries, and continues to expand there and in many other industrial countries. 'Eating out' in pubs and restaurants is seen as one of the most popular leisure activities with an annual turnover of £2,500 million for burgers and fried chicken, compared to the total annual turnover of £8,500 million (Jones et. al, 2003). Global fast food giants have radically influenced food preferences in the developing countries as well. According to an ACNielsen study of 28 markets across the US, Europe and the Asia-Pacific conducted through an online survey with more than 14,000 consumers, Asians are the world's greatest fast food fans. Hong Kong topped the list with 61 percent of the adult population eating at takeaway restaurants at least once every week, followed by Malaysia with 59 percent, Philippines with 54 percent, Singapore (50 percent), Thailand (44 percent) China (41 percent) and India in the seventh place with 37 percent. In the US, the proportion of adult population eating at takeaway restaurants at least once every week is 35 percent. Fast food for a fast world seems to represent consumers with less time for food purchases and food preparation, whereas organic food for the green world seems to represent consumers combining food with life-styles and green consumerism.

CONCLUSIONS

Rising global obesity and ethical consumerism concerning food scarcity, environment and unethical practices has put a question mark on corporate social responsibility of food companies. Answers to the same lie in organic food which is produced according to a set of principles and standards concerning food safety and quality, animal welfare and sustainability. Worldwide changes in food and eating habits from processed food and fast food to organic food and vegetarianism has forced the food industry to promote organic food. Therefore, the organic food industry with focus on "Green Consumerism" can be seen as a new business paradigm in the years to come in the food trade.

Issues for Debate and Analysis

Q1. The fast food industry and rising global obesity has shown a trend towards organic food and vegetarianism, seen more in the Western world. Explain.

Q2. "Green consumerism will become the buzzword" in the food industry. Critically examine the statement.

Q3. What are the challenges for the global organic food industry? Do you think it is difficult for the organic food industry to face the challenges?

Q4. Suggest ways and strategies that you think are appropriate for the global organic food industry in view of difficulties and challenges ahead.

Subject: Natural & organic foods; Vegetarianism; Obesity; International; Ethical consumerism

Classification: 7100: Market research; 9180: International

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 167-177

Number of pages: 11

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600039

Document URL: http://search.proquest.com/docview/745600039?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 35 of 100

SECTION 3. FOCUS ON CORPORATE GOVERNANCE, BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL CHALLENGES - Chapter 16. How to Cope with Environmental Turbulence? A Case of Excel Crop Care Ltd.

Author: Narula, Sapna A; Upadhyay, K M

ProQuest document link

Abstract:

This case presents the situation faced by a domestic firm in the Indian pesticide industry, after the environmental turbulence caused by changes in technological, regulatory, and competitive environment and also the rising concerns about food safety and environmental toxicity by consumers and other stakeholder groups. The case deals with an introduction to the pesticide industry, the current environmental situation in the industry, recent changes that led to the turbulence and link this with the problems faced by the domestic firm at the corporate, business as well as functional levels. The case provides detailed profile of the said company and the challenges faced by it in particular. This case could be a potential resource in teaching strategy as well as business environment courses, where students can be asked to work out strategies for the firm with respect to the corporate, business and functional areas to overcome the given environmental challenges. This could also be a useful resource for diversified clientele such as academicians, students, researchers and managers working in the area of strategy. [PUBLICATION ABSTRACT]

Full text:

The recent worldwide surge in food grain prices and food grain shortages have brought farming into sharp focus. The agriculture sector is expected to receive due importance, funding and growth impetus. With the forecast of near -normal monsoon in the current year, the short-term outlook for the agrochemicals industry and company under discussion appears reasonably good. Exports continue to remain the focus area of growth for the company and it continues to make efforts to strengthen its presence in the existing export markets and penetrate new markets.

A. C. SHROFF, Chairman, Excel Crop Care

Mumbai, 30th April, 2008.

BACKGROUND

It was a difficult time for the pesticide companies from 1995-2005, when the competitive, regulatory, environmental, technological forces were changing fast posing a threat to the domestic pesticide companies. The environmental situation changed so fast that firms had to struggle hard for maintaining market share and profits. Excel Crop Care, a domestic firm, also found it hard to thrive amidst this turbulent environment because of its reliance on only a few maturing generic molecules, traditional sales force and marketing practices. It was difficult to match the competition posed by multinationals with new generation molecules and strong marketing capabilities. Also, by this time, the environmental stakeholders started criticizing firms marketing toxic molecules in the market. Domestic firms had also realized the threat and acquiring new products and markets and diversified into related businesses to face competition. The management of Excel Crop Care was worried about the future, as the present products and markets did not offer many promises. Obviously, the situation demanded a strategic change in order to win the competitive race.

THE PESTICIDE INDUSTRY IN INDIA

The products of the Indian pesticide industry are used as agricultural inputs to protect crops from harmful pests, diseases etc. besides having other professional uses such as public health, animal health and construction purposes. The industry has essentially been involved in the production of generics and is the second biggest producer of active ingredients in Asia, next only to Japan and is ranked twelveth in the world. Around 80- 85 percent is indigenous production and the balance of technical pesticides are being imported. The pesticides industry in general has a large domestic market, but a big export market also exists. Insecticides are the largest product sector contributing 59 percent of the total market. Around 144 insecticides are approved for use on crops. The key crop outlets for insecticides are cotton and rice, which account for about 45 percent and 23 percent respectively of the total value of insecticide sales. (Narula & Upadhyay,2008a & 2008c)

It is one of the most dynamic generic pesticide industries in the world having a total installed capacity of technical grade pesticides to the tune of 125 thousand MT. It has ten multinational companies and 400 pesticide formulators (large, medium and small scale). Pesticides are classified into insecticides, fungicides, and herbicides /weedicides. Insecticides dominate consumption with around 59 percent of estimated consumption of pesticides, followed by fungicides (18 percent), herbicides/ weedicides (16 percent), and others (5 percent). Any insecticide which is manufactured, marketed, exported or imported in the country has to be registered with the Central Insecticide Board. A Registration Committee (RC) has been constituted under Section 5 of the Insecticides Act, 1968 to register insecticides after scrutinizing the formulae, verifying claims of efficacy and safety to human beings and animals. The per hectare consumption of pesticides in India is estimated at 0.5 kgs which is not uniform and varies vastly across the country with the agro-ecological settings, cropping patterns, irrigation facilities, intensity of pests and diseases, resistance and resurgence of insect pests, etc. Cotton, paddy, vegetables and fruits are major crops where pesticides are used. Cotton accounts for 45 percent of pesticide consumption in India, followed by rice (23 percent), wheat (9 percent), vegetables (7 percent), wheat (6 percent), and pulses (4 percent) in 2001-2002, whereas presently paddy is the highest pesticide consuming crop with 29 percent share followed by cotton with 26 percent. Oilseeds, fruits and vegetable markets are growing.( Narula & Upadhyay, 2008b & 2008c).

The industry mainly has two strategic groups i.e. domestic companies and multinationals. Domestic companies are integrated either fully or partially, manufacture mainly generic molecules and market their products in both the domestic as well as export markets. Indian companies also have a low cost manufacturing base for generics, which give them a competitive edge in global markets. Besides this, domestic firms have innovated process based research and possess knowledge to manufacture the product at very low cost. On the home front, these firms have strong marketing capabilities backed by intensive distribution channels and field forces. Multinationals enjoy strong research capabilities of their parent companies and have innovative patented solutions. These are not backwardly integrated companies, but recently they started recognizing India as a manufacturing base and set up manufacturing facilities for supplies across the globe. The MNC's spent heavily on brand promotion, which helped them establish themselves in the market within a very short period.

THE PARADIGM SHIFT IN THE PESTICIDE INDUSTRY (1995-2005)

The pesticide industry passed through a phase of a paradigm shift during the last decade, which was induced by environmental pressures due to maturing products, outdated technologies, rising environmental concerns from society and other concerned stakeholder groups. The entry of multinationals with new generation products in the market during the early nineties also posed a threat to Indian firms, already fighting a losing battle with mature products and regulatory concerns. A major sector of the Indian market was also dominated by the unorganized sector. The hypercompetitive situation due to brand clutter and alternative products and solutions had squeezed company margins. Introduction of Bt Cotton in the market had also ushered in a technological revolution negatively impacting the sale of pesticides. The last decade had also seen consolidation in the global pesticide industry which strengthened their Indian multinational arms with respect to product portfolio and market functions. Companies such as Bayer, Syngenta, BASF, Monsanto expanded their portfolio through mergers and acquisitions. Similarly, realizing the need for having more innovative solutions rather than mere generic ones, Indian companies also started acquiring products/brands in India as well as in other markets. The firms were also looking for opportunities in other related sectors such as seeds, hybrid seeds, and biotechnology products.

Companies were being criticized by environmental groups for manufacturing harmful pesticides which also gained a public voice, ever since the report on contamination of cold drinks and mineral water with pesticide residues by. Centre for Science & Environment (CSE.). Due to rising environmental concerns in society and among consumers, there was a great hue and cry to withdraw the use of persistent molecules. With a view to reviewing the continued use of pesticides in India that are either banned or restricted for use in other countries, the Government of India set up an Expert Committee, which took a few important measures during last few years, as it reviewed many pesticides and banned/ phased out some of the toxic molecules. The fate of some important molecules such as Monocrotophos and Endosulphan was under preview of the expert committee. The threat intensified with the entry of new technological substitutes such as Bt cotton, which had established themselves in the market.

During 1995-2005, the prices of generic molecules crashed in the market. These molecules were either at a mature stage or were facing competition from new molecules. New molecules which are being launched by multinationals or other Indian giants and commanded premium prices. The bargaining power of the consumer was increasing alongside hypercompetition in the market owing to increase in the number of brands being offered. The usage pattern of different product lines was continuously changing. Insecticides had been occupying a major share in pesticides sales. The use of weedicides in India was low initially because of the cheap availability of manual labour to remove the weeds. This trend was in contrast to the world pesticide market, which had a major share of herbicides in total pesticide sales. Out of the total 144 pesticides registered, there are 63 insecticides, 23 herbicides, 37 fungicides, which also shows the dominance of insecticides in pesticide use scenario. But during the late nineties, the sale of weedicides and fungicides grew with commercialization of some crops such as soyabean, oilseeds, fruits and vegetables. These segments offered new opportunities for new molecules. The statewise consumption pattern shows U.P., West Bengal, Uttarakhand, and J&K as emerging markets for pesticides. The top five pesticide consuming states in 1995 were Andhra Pradesh, Uttar Pradesh, Punjab, Haryana, Gujarat and Maharashtra which contributed 56.55 percent to the total pesticide consumption. Whereas in 2005, the top five pesticide consuming states were Punjab, Haryana, Uttar Pradesh, West Bengal and Maharashtra.

The industry had huge installed capacities for generics with very low capacity utilization. Insecticides dominate production dominated by fungicides and herbicides. The industry manufactured 43 molecules in 2005, most of which were off-patent products like Malathion, Monocrophos, Phorate, Endosulfan, Acephate, Chlorpyriphos, Mancozeb and Isoproturon. (Annexure I-IV)

ABOUT EXCEL CROP CARE LTD

Excel Crop Care is one of the major domestic players in the pesticides industry and is also one of the leading exporters of technical guidance and formulations. Excel Crop Care came into existence when the agribusiness division of Excel Industries was hived off in 2002 into a separate arm. Earlier, the pesticide business of the company was under Excel Industries Ltd. which used to primarily manufacture high quality chemicals relevant for the needs of industry and agriculture. The products of the company, which are pesticides and pesticide intermediates, are marketed all over India and are exported to over fifty countries around the world. Excel has expanded its activities to provide farmers with a broad range of products and technical guidance. This ranges from initial conditioning of the soil, through preparation for planting, seed selection, irrigation, pest and insect control, maximizing productivity and harvesting and post harvest management. Excel was also the first company in Asia, and third in the world, to make Endosulfan technical, and first in Asia to make butene diol - a major intermediate of Endosulphan. It is second in the world to develop Glyphosate technical. ( Narula & Upadhyay,2008c & company website).

The company was equipped with fully integrated production linked to the development of process technology appropriate to the needs of its customers. Excel was known for acting as a responsible corporate citizen and is also known for recognizing the need to have sustainable and environmental friendly agricultural processes. Research has helped minimize some of the effects of chemical fertilizers and insecticides. The company's initiatives in the field of Integrated Crop Management Systems (ICMS), Integrated Pest Management Systems (IPMS), Good Agricultural Practices (GAP), total water management, drip irrigation etc. is well known in the field of agribusiness. The company was also trying to harness the power of leading technologies in the field of agricultural biotechnology for the betterment of farmers. The company was also supported by the other businesses of the group company Excel Industries Ltd.

HISTORY

Excel Crop Care was formed after the crop protection unit of Excel Industry was hived off to form Excel Crop Care. The erstwhile Excel Industries Limited started off in a kitchen laboratory in 1941 as a private limited company and became public ltd. company in 1965. Earlier Excel Industries Ltd handled pesticide business. Excel Industries was originally incorporated as a partnership firm in 1941 and want public in 1964. The pilot plant for the manufacture of Endosulfan was commissioned in 1976. A plant was put up for the manufacture of aluminum chloride in the same year. In 1978, the company concluded two more agreements for supply of technical know-how and engineering services for the manufacture of malathion with FICOM Organics, Ltd., with Khatau Jhunker, Ltd. Another plant was installed to manufacture glyphosate, a weedicide was started in 1985. In 1986, the butene-diol plant with 600 TPA capacities was commissioned with an inbuilt facility for generation of acetylene gas. It was proposed to set up a 16,000 TPA plant for the recovery of high-alumina refractory grade cement from the company's phosphorous operations.(www.indiainfoline.com).

The company entered new busineses like micro-irrigation systems, seeds, biofertilizers etc. through a combination of marketing and manufacturing efforts. The company also started offering technology in tackling the ever-mounting menace of waste in cities and towns. The capacity of the plant to produce Butene Diol was expanded. The company also undertook to further modernize its major plants to improve operational performance. In 1995, the company commissioned a windfarm project in Rajasthan with an installed capacity of 2.7 MW. In 1996, the company expanded production capacity of yellow phosphorous at its Bhavnagar unit and Glyphosate at the Roha unit. In 1997, the company also commissioned a new pesticide formulation unit at Silvassa in the Union Territory of Dadra & Nagar Haveli to manufacture Glycel 41 percent SL and exports to add facilities in future to manufacture other formulations. The company held a major market share in Endosulfan and Glyphosate pesticides. It also developed expertise in organic soil enrichers, drip irrigation systems and pest control products. In 1998 - ISRAEL'S Netafim, a US$ 200m turnover micro irrigation company entered into a joint venture with Excel Industries Limited, the Mumbai-based manufacturer and exporter of agrochemicals, and Jalbindu Agritech Pvt Ltd, an Umargaon-based manufacturer of drip irrigation systems. Excel Industries, pioneers in recycling wastes into fertilizers, planned to expand the business worldwide, particularly in Asia and the Pacific region. Excel commissioned a pilot plant for herbal extraction at its production site at Lote Parashuram and entered into a co-marketing arrangement with the Danish multinational Cheminova for its Glyphosate-based formulation, a systemic weedicide. ( www.indiainfoline.com).

Excel Crop Care became a frontrunner in providing environment-friendly solutions and a pioneer in bringing integrated crop management to the country as well. The company developed a process to convert city waste into bioorganic soil enricher called Celrich. In 2002, the company's agribusiness division was hived off into a separate arm. i.e. Excel Crop Care Ltd. Though this is the main company dealing in pesticides, but the integration of group activities, mainly activities of Excel Industries Ltd. becomes important to study. The operations of Excel were organized into four divisions with the agrochemicals division being the largest contributor to sales revenues and profits of the company. Endosulfan, a broad-spectrum pesticide was the major revenue earner for the company.

CHEMICAL BUSINESS

Chemical business begins by extracting elemental yellow phosphorus moving downstream to phosphorus based compounds like Phosphorus Pentasulphide, Phosphorus Trichloride and DETC. Another field of activity in which the company is engaged in, is fine chemicals, primarily products like Acetyl Chloride. It has developed certain chemical strengths, which has been put to good use in the area of agrochemicals. The company's core strength is chemical knowledge and during the last two or three years, it has consciously put its chemical knowledge to good use by looking at the portfolio available in various prospective market segments.

The company has also been dealing in intermediates, in water treatment, soaps and detergents, lubricant additives, textiles, dyes etc. and plastic additives, mining chemicals and specialty chemicals. In the chemicals division, the company has been looking both at the domestic and export markets through alliances. Contract manufacturing is a major activity, which the company is pursuing. In this division, the company is building strengths, which are already available within the company and is looking at new market segments, newer chemistry and for widening its portfolio.

ENVIRONMENT & BIOTECH

Excel developed biodynamic products and processes for dealing with environmental problems encompassing municipal solid waste, putrescible wastes from agriculture, horticulture and aquaculture industries, sewage sludge, industrial waste streams and contamination of soils and waters by hydrocarbons and other organic compounds. Its activities include sanitization, bio-conversion, bio-remediation and bio-augmentation. This division has developed a process consisting of isolation of friendly microbes that convert city waste into bio-organic soil enricher called Celrich. . This technology is unique in that it solves two problems at the same time. One, it solves the garbage management problem. And second, the product that comes by the treatment of garbage is a value-added product.

The company has an unique technology which it provides to many others also having their own plants. The company has established plants by providing assistance to municipal corporations like Puri, Mysore, Calicut and Trivondrum and provided technical know- how to local entrepreneurs who have set up plants in cities like Vijaywada, Ahmedabad, Calcutta and Delhi.

The company also has a life sciences division. All these four group businesses had some kind of synergy with each other. While agrochemicals formed a major part of the business handled through a separate company, the company is not only agrochemicals- related, but has other divisions also. While the chemicals division makes agrochemical intermediates, it also makes other chemicals, which have nothing to do with the agri business. Similarly, one of the products of the environmental division is agri input, but its major business is waste management.

SALES PERFORMANCE OF EXCEL CROP CARE

Excel was ranked among industry leaders with a turnover of Rs.3924.54 million. Sales showed around 13 percent increase in 2003-2004 and a further increase of 31 percent in 2004. The financial performance of the company, which shows positive trends in the turnover of the company is presented in table 1. Profits were also increasing for the company. Performance of the company was encouraging in 2003-04 due to better exports resulting from the initiatives taken for the development of export markets and widespread monsoon which helped in sustaining domestic sales. The company's net sales during 2003-2004 were Rs. 290.17 crores compared to Rs. 256.99 crores in the previous year registering a growth of 12.91 percent. Exports were at Rs. 96.32 crores a growth of 42 percent as compared to Rs. 67.68 crores in the previous year. The sales turnover increased from 282.52 Rs. crore to 316.91 in 2003-04 and to Rs. 415.48 crore. The profit also showed a phenomenal increase of two and half times.

PRODUCT LINES OFFERED BY EXCEL

The company was manufacturing only a few chemicals. As multinationals made their entry into industry, Excel Industries was threatened as they had only a few mature products viz. insecticides catering to the needs of farmers. Other companies not only came with new proprietary molecules, but they also tried to strengthen their position in the domestic market. Excel's flagship product Endosulfan was also under stakeholders' scrutiny as a few deaths were reported among cashewnut farmers in Kerala.

The company was fully integrated as it manufactured technical pesticides, formulations and pesticide intermediates, which has been the largest contributor to sales revenues and profits of the company. Technical pesticides contributed 42 percent to sales revenues of the company. It was one of the largest producers of Endosulfan technical, a broad-spectrum pesticide in the country. Other major products contributing to the revenues of the company are Glyphosate, Chlorpyriphos, Zinc Phosphide and Aluminium Phosphide. (company website). The company is diversifying into fungicides and weedicides, whereas earlier it was only selling insecticides. It has introduced some new products such as Profenophos including some outsourced ones. The company also added biopesticides to its product portfolio and has launched some products, which can be used in integrated pest management and integrated crop management practices.( www.excelind.co.in).

The company is among the world's leading manufacturer of Endosulfan, Glyphosate, Chlorpyriphos, Aluminium Phosphide and Zinc Phosphide. In 1994, Excel became the first Indian agrochemical company to be certified ISO with 9002. Four of the major plants were ISO 9002 certified and two of the sites had ISO 14001 certification. The company had achieved over hundred product and process breakthroughs. Each of the manufacturing locations had a well-equipped R & D facility where eco-friendly chemistries for crop care and effective formulations, technologies and recipes were explored.( Annual Reports and Website).

AT PRODUCT MIX OF EXCEL CROP CARE

Ealier, the company was having a few technical as well as formulated pesticides. It was manufacturing three insecticides, one herbicide and two fungicides. Some other products were only traded. But the company a very good market share in some of its products such as Endosulfan and Glyphosate (www.excelind.co.in). In 2001-2002, the division launched three new formulations under the brand names Celron, Hexzol and Bipex and also strengthened its product range in the export market. (Annual Report). New agri product registrations were obtained for domestic and international markets, thus expanding the portfolio of pesticides. Some products, which contributed the maximum to its turnover such as Glyphosate, Endosulfan, Aluminum Phosphide were in a mature stage. The company was not having any low dosage and problem specific product.

The company was making in concerted efforts to improve its packaging to compete, both in domestic and global markets, by developing and improving high-tech and user- friendly packaging. These efforts also enabled it to automate packing lines in its various plants. Innovations in packaging were also being carried out to minimise competition from spurious products.

Excel is one of the leading companies exporting to many nations across the world. Its technical actives as well as bulk and branded formulations are presently registered and marketed in Asia-Pacific, South Asia, West Asia, Africa, Europe (West & East including CIS countries), Central and South America and the USA. Exports accounted for about 32 percent of the turnover in 2004-2005.

STRATEGIC FOCUS AT EXCEL CROP CARE

Integration has been an important part of the company's strategy after diversification. The company has been a long-term integrated player as it is also manufactures raw materials such as phosphorous and its compounds, pesticide intermediates, pesticide technicals and formulations. This is also a part of company's cost reduction strategy, which was desirable for any pesticide company in such on environment The focus on formulations also enabled the company to effectively leverage its solid brand equity in rural India. Backward integration enabled it to have a very competitive cost structure. Due to its low cost structure many MNC's sourced their requirements from Excel. The company had also realized that it had to concentrate on environment-friendly product and processes and had started work in this regard. (Annual Reports)

CHALLENGES BEFORE EXCEL CROP CARE

With the given situation during 1995-2000, it was evident that the company had strengths such as huge installed capacities, backward integration and hold over domestic and export markets, whereas the future scenario could affect its sales and turnover in the long term because of reliance on only a few products, very narrow product range etc. Though there were more opportunities in exports as well as in domestic markets, and their realization amidst the competitive clutter with the current set of capabilities was a challenge. Management was consciously thinking to harness these opportunities, but it seemed a challenging job with maturing products, competitive turbulence, increased regulatory concerns, incoming new products and technologies. Hence, the company undertook some strategic decisions which helped it to gain leadership in the industry even today.

EXCEL CROP CARE TODAY

Today, with three manufacturing plants; over 1200 dedicated employees; a range of market- leading brands; a distribution network of 40,000 dealers; a customer base running into millions; and a turnover exceeding Rs.3000 million and accumulated wisdom of six decades, Excel is the world leader in generic chemicals. Excel Crop Care's technical actives, bulk and branded formulations are presently registered and marketed in Asia Pacific, South Asia, West Asia, Africa, Europe (West & East including CIS countries) Central & South America and the USA. Exports presently account for about 25 percent of the turnover. Besides the necessary infrastructure in the plants, the company has a subsidiary in Antwerp, Belgium manned by professionals who clearly understand the requirements and specialties of customers in that part of the world. (www.excelcropcare.in)

Excel Crop Care adopts an integrated approach to manufacturing and has built world- scale capacities to make technical actives and formulations. To ensure quality and continuity of supply, key raw materials are produced by the company itself or are sourced from associate companies. The company is among the world's leading manufacturers of Endosulfan, Glyphosate, Chlorpyriphos, Aluminium Phosphide. The main manufacturing plant at Bhavnagar is ISO 9002, ISO 14000 and OSHAS 18000 certified, and meets statutory requirements on quality and safety. The more recent plants at Gajod and Silvassa are equipped with state-of-art machinery and are in the process of obtaining the ISO certification. Each of the manufacturing locations has a well-equipped R&D facility - which is Government of India approved - that's busy exploring newer eco-friendly chemistries for crop care and effective formulations technologies and recipes. The company has also diversified into seed business, biofertilizers and soil enricher and other products, which has not only sustained its business, but increased it multifold. (www.excelcropcare.in)

ISSUES

The company has faced challenges in areas of environment protection. It had to develop strategies to meet short term and long term objectives after taking into account its strengths and weaknesses. The case provides an opportunity to study and:

1. Perform a SWOT analysis for Excel Crop Care in light of the environmental situation during 1995-2000

2. Discuss how the environmental factors could affect Excel Crop Care?

3. Examine challenges faced by Excel Crop Care?

4. Identify corporate, business and functional level strategies pursued by the firm in the short term as well as long term to attain its present position?

5. Arrive at present challenges before the company?

Subject: Case studies; Pesticides; Sustainable development; Strategic management

Location: India

Company / organization: Name: Excel Crop Care Ltd; NAICS: 325320

Classification: 2310: Planning; 1540: Pollution control; 8640: Chemical industry; 9179: Asia & the Pacific; 9110: Company specific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 178-191

Number of pages: 14

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745599929

Document URL: http://search.proquest.com/docview/745599929?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 36 of 100

SECTION 3. FOCUS ON CORPORATE GOVERNANCE, BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL CHALLENGES - Chapter 17. Leveraging Appreciative Intelligence for Positive Enactment: A Case Study of a Small Investment Firm

Author: Case, Susan Schick; Thatchenkery, Tojo

ProQuest document link

Abstract:

This case study of a small investment firm examines the complex relationship among markets, enactment, and learning, often from ambiguous events in unstable environments. Using Weick's notion of enactment (1979), we show that managers often create their environments through cycles of perceptions and action, whereby perceptions of the environment leads to particular actions and choices by organizations. Such a process makes use of two of the three components of Appreciative Intelligence: reframing to recognize opportunities and engaging in actions to bring the new possibility to fruition. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

One of the most common challenges facing managers is figuring out what is going on in the environment or market. For that reason, all organizations, knowingly or unknowingly, incorporate a view of the environment. Most of these models assume that the environment is quantifiable and objective (Scott, 1987) whereby the organizations could adjust outputs and strategies based on their assessment. In this case study, we build on an alternative approach that organizations invent the environment to which they in turn respond. Environment is not only something that is concretely "out there," but is also created by organizational imagination. For example, Daft and Weick (1984) conceptualized a model of organizations based on how managers interpret their environment. Two key dimensions of this framework are: (1) manager's belief's about the analyzability of the external environment, and (2) the extent to which the organization intrudes into the environment to understand it. Figure1 shows possibilities based on these two dimensions.

In undirected viewing, the organization does not depend on hard, objective data because of the belief that the environment is essentially unanalyzable. In conditioned viewing though, the assumption about organizational intrusiveness is the same, the environment is perceived to be analyzable. In the discovering mode, organizations intentionally search the market with powerful analytic tools. The fourth category, which is the focus of this case study, is called the enacting mode. In this space, organizations exhibit an active, intrusive strategy while believing that the environment is unanalyzable. According to Daft and Weick (1984), organizations construct their own environments in this mode. They collect useful information by trying new behaviors and observing what happens. A premium is placed on experimenting, testing, and ignoring precedent, rules and traditional ways of doing things. Organizations in this mode, tend to create a market rather than finding out whether a need really exists for a product or service.

Enactment involves the bracketing of some experiences from the stream of events and swarm of experiences which surround organizations, paying attention to what is bracketed and using these to enhance meaning (Weick, 1979). This selective process of attending to some stimuli is similar to reframing, the first component of Appreciative Intelligence (Thatchenkery & Metzker, 2006). The third component of appreciative intelligence is similar to enactment. The essence of enactment is that organizations often impose that which subsequently imposes on them. The environments organizations face are acts of invention rather than acts of discovery. In other words, "environment" could also be an output of organizing. The focus of this case study is to show how leaders use their Appreciative Intelligence to generate their own environments and thereby create realities to which the organization in turn adapts. Because people can "construct, rearrange, single-out, and demolish many 'objective' features of their surroundings" (Perrow, 1986: 212), some managers- 'forceful individuals' (Weick, 1987: 17)- can select, emphasize, modify, and/or allocate attention to particular expectations or types of expectations to which they prefer to be held.

Organizing is the task of reducing the equivocality of experience, through a process of sensemaking (Weick, 1979). As mentioned earlier, this sensemaking is accomplished through reframing, one of the components of Appreciative Intelligence. The term equivocality reflects Weick's appreciation of the subject's involvement in a knowledge situation, emphasizing his analysis of the actual behavior of the subject and the language rules by which meanings are fabricated. Organizations coping with highly equivocal environments, such as the environment confronting a small investment firm will encourage numerous cycles of interpretation or "sensemaking". The application of such rules specifies a body of knowledge which is, in Weick's view, an output of organizing, namely the "environment" itself.

The case study demonstrates two kinds of enactments: enactment of limitations and enactment of possibilities. In the former, according to Weick, (1979:149), perceptions of limitations result from a "failure to act rather than a failure while acting." Organizations seldom recognize that their understandings of limitations are based on presumptions rather than actions - an avoidance of testing rather than a test of skills. By an avoidance of testing, organizations come to the conclusion that constraints exist in the environment and limits exist to their possible responses to these constraints. In the latter, the strong presence of Appreciative Intelligence helps in reframing by bringing out new possibilities, and engaging in action to bring those possibilities to fruition, thus creating an enactment of possibilities.

ENACTMENT IN A SMALL INVESTMENT FIRM

This case study is an analysis of how the concept of reframing and enactment, particularly enactment of possibilities, unfolded in Blue Chip Investments, Inc., a money management firm situated in the Southwestern United States at the time of this case study. The firm managed individual and corporate accounts for a local clientele. The assets under management had grown from US $30 million to over US $110 million in a few years. For individuals, the firm provided "courage" and "confidence" in investing in common stocks and expertise in constructing efficient portfolios. For corporate and pension fund clients, the firm provided "accountability" by sharing the responsibility for such funds with plan sponsors and other fiduciaries. Investment results had been good largely due to the intuitive acumen of the founder, Eli Rock and to a five year bull market in equities at that time.

The staff had grown from three to six persons at the time this case study was created. Rock, the founder, worked long hours on the phone and in meetings and was the primary "marketer" of the firm's services. His staff consisted of an administrative assistant, a receptionist, two research analysts and a portfolio manager who checked client reports and stayed current with the publications and regulations in the industry. The introduction of computer technology and new exotic financial instruments had radically altered the firm's operations. Thanks to his high level of Appreciative Intelligence, Rock reframed the challenges as presenting him with both new problems and possibilities. His goal was to reframe in such a way that he could tap the potential for further growth without necessarily becoming a "hands on" expert in all areas of the firm's activities.

The construction of meanings was a primary activity of Blue Chip Investments. The changing economy required continuous interpretation and judgment in the form of affirmation, or denial of the firm's own expectations. The value of investment advice depended on performance and, therefore, the processes involved in the gathering of knowledge had critical consequences. If the expected scenarios did not come about, some accounts would certainly be lost.

Economic data, as expected, was always plentiful. Aside from the publications of the financial press, including newspapers, brokerage literature, newsletters and magazines, Blue Chip also received data through a Quotron device and various online services. The quantity of data was enormous, and Eli Rock's investment decisions were based on his understanding of this data. Though the Blue Chip was active and intrusive in its relationship to the environment, it fundamentally regarded the environment as unanalyzable and highly equivocal. As mentioned in the model, an organization in the enacting mode must create its own environment by gathering information, trying new behaviors, and seeing what happens.

While Rock coped with information selectively, he was careful to sustain equivocality in his interpretations for as long as possible. An unexpected datum rarely evoked a swift affirmation or denial but, rather, provided the occasion for further conversation and social interaction, for further application of sensemaking rules. Confronted with a lower-than- expected producer price index, for example, Rock would call David into the office for a discussion, in which he would offer his tentative interpretation of the event. Rock might suggest that, although this figure was lower than he expected, next month's index would be higher than expected, thereby justifying his overall expectations. Rock encouraged David to criticize his position and offer additional and alternative explanations, e.g. wages had risen more slowly than expected, and thereby dampening producer price increases. Except in true emergencies, consensus was not required at this early point. Throughout the day, Rock would engage others in conversation on the subject of the producer price index, listening intently both to the other person and to himself, exhibiting a form of mindfulness often seen in individuals with high Appreciative Intelligence (Thatchenkery & Metzker, 2006). He would call associates in the financial community and would assess the possibility and consequences of being wrong in his interpretation. In this instance, Rock applied few rules, limiting his actions to conversations with select individuals. As additional data became available, each datum was cycled through the sense making rules anew. Typically, Rock's behavior included few rules and many cycles.

Sustained equivocality, a reflection of both Rock's chosen style and the necessities of the environment, had the virtue of forestalling any rash action, allowing Rock to stir up additional variations in the environment which could contribute to a clear possible interpretation of the unfolding events. Usually, Rock's interpretation entailed no change in investment policy until enough sense had accumulated through additional events in time: "The greater the equivocality, the more times the data may be cycled among members before a common interpretation is reached."(Daft & Weick 1984: 292) In effect, the initial market change requiring attention, the low index number, was understood through an attenuated process encompassing many cycles. By its nature, the slower process subsumed the event in additional emerging events, reducing the significance and relevance of the original bracketed event. Given the quantity of data confronting all investors, such an incremental methodology effectively screened highly equivocal information controlling impulsive acts rooted in emotions.

As articulated by Weick (1979), much of what passed for planning and rational behavior in organizations is largely retrospective and self-rationalizing. Explanations and plans summarize past enactments and, therefore, have a historical character for the organization. Planning may serve many needs, Weick might say, but providing for a future is probably the least of these. The processes for removing equivocality from events, while necessary to the organization, also limit its future adaptability. For organizations such as Blue Chips, the maintenance of equivocality had positive value because sustaining ambiguity helped while adapting to the environment. Rock's method with respect to economic data was biased towards sustained equivocality and the application of many interpretative cycles. This approach, common among professional investors, promoted challenging and contrary points of views, which engendered further sensemaking activities. Even so, the firm had no policy about interpreting price indices; rather, the standard operating procedure was embodied in Rock's behavior, in the actions characterized by conversations in face-to-face social contacts, and in telephone calls. The preeminence of these modes of sensemaking, that is, the preeminence of talk in Rock's behavior, ultimately provided Rock with an enacted environment. Without this social interactive basis for constructing interpretations, Rock would have been unable to reach conclusions all on his own. Indeed, pausing during one of his meetings to "think something out", Rock slapped his head saying: "When I think, I get brain-dead!". Rock was aware that his conclusions were never formulated all on his own, but depended on sensemaking through social interaction.

In Weick's terms, Rock had no way of knowing what he thinks until he has heard what he says. Confronted with memos, Rock often insisted that the author read the memo aloud to him, or, at least, tell him "what's in it". On another occasion, Rock described the interpretation of economic data as "...much like finding the donkey in the picture," referring to a children's game in which a picture contains some obvious forms such as a house and car and, also, some inconspicuous figures hidden within the overall line drawing (the donkey in the picture might be part of a cloud, for example). This act of discriminating the foreground donkey from the clearer background figures well depicted the process of bracketing experience and making sense of things.

Apart from face-to-face conversations, Rock's business life was focused on the telephone. Up to forty yellow phone messages were centered on his desk in a matrix. Approximately 50 to 70 per cent of his time in the office was spent on the phone. The remaining time was spent in staff meetings, informal conversation with staff, and meetings with clients. On slow days, Rock would wander about the office, engaging in informal talk as though he was waiting for the phone to ring.

Weick describes several senses of enactment. First, he thinks of enactment in the sense of 'decree,' in which meanings are constructed as though by fiat. Rock's interpretation of computer-mediated data provides an example of this meaning of enactment. Confronted with change in the ecology, the new producer-price index, Rock eventually constructed meaning for the number through cycles of talk. In another sense, Weick describes enactment as a kind of charade or play-acting. In this sense, enactment entails experimental behavior in which the actor behaves as if a situation were true. The play-acting serves to uncover possible meanings (creating ecological change, in Weick's terms), and these possibilities encourage further actions. The actor produces variations which, in turn, provide the occasion for further sensemaking through bracketing and construction.

When Rock required a more complete understanding of events and ideas, he would often create a pretense, a drama in which he acted as if a condition were true. Through his social and business networks, Rock was continually active at the organization's boundary, creating new opportunities and new organizational identity. Rough-hewn product ideas were developed out of ceaseless talk and interaction. For example, Rock once decided that small businesses needed planning advice on the deployment of assets given the uncertain economic future. He reasoned that larger firms have staff economists who provide advice on financing decisions, but that smaller firms have limited access to projections and little time or expertise to plan effectively in view of these projections.

Rock's methods in developing this notion were revealing. Rather than planning the service and devising a methodology appropriate to the envisioned clientele, he scheduled a series of meetings with executives and accountants. At these meetings, Rock presented his idea as though it were a near-completed project, a packaged service already in place for the small business client. He told participants the areas in which Blue Chip would give cogent advice, and he worked through several hypothetical examples, as though the methodology had already been developed. In actuality, Rock was marketing a service that did not exist. The meetings were a charade in that nothing much had been done with this project. In fact, it was not even clear at this point if Blue Chip could actually deliver such a service. This was a clear instance of the third component of Appreciative Intelligence, bringing the future to the present (Thatchenkery & Metzker, 2006).

The pretense of a completed product produced important consequences. First, Rock was able, through face-to- face contact, to assess the impact of his business planning service, identifying possible weaknesses and problems as he presented the service. Second, this enactment led to definite contracts for the service from several larger firms, an unexpected outcome. Confident now in the feasibility of the concept, and unconstrained by previous presumptions about the potential demand among smaller firms, Rock rescaled his target market to focus on larger firms and to use more quantitative tools in rendering planning advice. Through enactment, Rock created a new product market in the form of new constraints and new opportunities for his firm. As an actor, Rock produced sense and meaning for a project which appeared, to some, flawed and senseless. The appearance of contracts for the service had, in effect, created the possibility of that very service.

David had been opposed to the concept from the first. He thought the project was distant from the firm's area of expertise, which is the application of statistical principles to the management of portfolios. Success in money management had been due, in part, to the statistical properties of carefully selected portfolios. But how can Blue Chip apply population statistics, appropriate to populations, to the individual firm? In addition, Blue Chip had already made a sizable commitment to the expansion of the money management service to the pension fund market, a major undertaking in terms of resources. With the current staff of six, would resources be stretched too thin?

Rock's demonstration of positive feedback, especially new contracts, however, encouraged David. Brushing aside his doubts about the utility of analytical principles to guide the development of a business planning service, David reasoned that firms are themselves portfolios of assets and liabilities, and that statistical principles applied to portfolios of securities could also be applied either to the population of a firm's operating units, or to the balance sheet itself. Such analyses would provide insight into the optimal deployment of assets in the face of uncertainty. Committed by Rock's charade, David was forced to find a coherent approach to the new service despite his own initial misgivings.

These positive results, including the redefinition of Blue Chip's environment, were a result of Rock's way of doing things. They were a result of Rock's enactments of bringing the future to the present. Where the environment previously consisted of investors, markets and securities, the new environment also included businesses seeking strategic planning advice. Rock reframed the firm's boundaries by enacting possibilities which were then fed back to him as constraints and new possibilities. Furthermore, the contracts legitimized the new service. Rock's belief, then, led to action that led, in turn, to a revised belief, which focused David's energies. As Weick would have it, a goal was evoked by action and not by plan. The firm's understanding of the project bore some resemblance to the initial rudimentary belief; even so, the target market had been altered and the methodology refined and elaborated. It was likely that further pretense and experimentation would continue to alter the firm's comprehension of its goals.

CONCLUSION

This case study supports the view shared by Bluedorn (1993) that enactment and several important components of strategic management become the same thing. The classic definition of corporate strategy: "What business(es) are we in?" becomes a special case of the question, "What environment are we in?" The strategic choice (or default) to engage in a certain business area, or not to engage in it, would be based on perceptions of the business area, and a decision on whether or not to enter it. Similarly, the business-level strategic issue of how to compete in the business will have an impact on the industry, hence enacting, at least partially, the environment in which it operates. Thus, organizational enactment and strategic management address several important common issues, and it should be possible to develop a unified framework between the two perspectives.

In Weick's enactment-selection-retention framework, the informational stimuli to which an organization is exposed, result from past strategic actions that bracket and construct the environment. This would imply that actions taken by the firm in the past serve to focus the attention of managers, and that their perception of the environment is built to a large degree by their observation of the outcomes of past actions. In this sense, strategic actions are prods or experiments which serve to provide information to managers about the conditions in which they operate. Future actions, to the extent that they respond to the environmental considerations, are taken in the context of the firm's enacted environment, rather than in the context of any external defined environment.

The case study of Blue Chip Investments also illustrates how the two components of Appreciative Intelligence - reframing to recognize opportunities and bringing the future to the present (enactment) - help us to understand a small firm with an active, vocal founder who confronts an unstable and highly equivocal environment. It also brings into focus the seldom discussed fact that environment may also be the outcome of organizing, as opposed to the commonly held view that it is "out there" to begin with. It is not clear, though, whether the 'enactable" nature of this firm's environment is a function of the firm's size, characteristics of the industry, style of the individual entrepreneur, or a combination of these. We do not know if enactment also fits larger firms with less active founders, in a more stable environment. Yet, it is safe to assume that in small organizations, an analysis based on Appreciative Intelligence and enactment theory will bring about an enlightened and newer understanding of the relationship between organizations and their environment.

Subject: Small & medium sized enterprises-SME; Investment companies; Opportunity; Managers; Strategic management

Classification: 2310: Planning; 8130: Investment services; 9520: Small business

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 192-199

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600014

Document URL: http://search.proquest.com/docview/745600014?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 37 of 100

SECTION 3. FOCUS ON CORPORATE GOVERNANCE, BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL CHALLENGES - Chapter 18. Dynamics of Corporates and Stakeholders Perspective of CSR: A Case of the Sports Goods Industry Meerut

Author: Tyagi, R K

ProQuest document link

Abstract:

The recent revival of interest in improving the lives of the poor working people and encouraging use of a set of standards or a specified code of conduct is a result of the articulation of an evolving global awareness on ethical and social concerns, particularly among partners engaged in cross-border trade. According to a study conducted by Bachpan Bachao Andolan (BBA) in association with the International Labour Rights Forum, 2008, discloses that one can come across hundreds of young children stitching artificial leather pieces stamped 'child labour free' in the slums of Budh Vihar, Kamal Pur (outskirts of Meerut) and Shiwal Khas (a nearby pocket). Meerut with a population of one million people is one of the largest suppliers of sports goods. The study further shows that even after 12 -14 hours work a child can stitch a maximum of two footballs and earn at best Rupees 3-5 for each, which is 40 times less than the of a football retail price in disregard of the FIFA agreement of 1996, European Parliament resolution 2004, Indian Sporting Goods Industries monitoring and government's claims against no child labour. This case study profiles the Sports Goods Industry Meerut (S.G.I.M), the feedback of recognized stakeholders to develop an understanding of corporate social responsibility perspective within the operations of SGI in Meerut. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Meerut town is in the north-western Uttar Pradesh state of India and lies northeast of Delhi, the capital of India. It is situated between the rivers Ganga and Yamuna. About three- four sports goods manufacturing units were functional in Meerut even before partition of the country; these units were manufacturing products like footballs, net and balls etc. [17; 11; 10] The industry exports to countries like Australia, Europe, Germany, Italy, France, Kenya, New Zealand, Middle East, Gulf countries, South Africa, United States of America, United Kingdom, West Indies etc. [16].

THE INDUSTRY PROFILE

The Sports Goods Industry Meerut is a manufacturer of internationally renowned sports goods with three types of establishments big, small and unregistered units [14; 16]. Thus the industry wields significant influence on the contemporary environment. The factors which contributed to the establishment of the industry in Meerut also includes migration of industrialists to Meerut because of partition [Joshi 1991; Singh, 2002].The assets of labor availability, transportation and communication facilities etc. are helping its growth path, inspite of no holds barred competition from other manufacturing centers of S.G.I's in India (Jalandhar, Gurgaon, Delhi, Mumbai, kolkata, Chennai) [7]. Indian sports goods are being exported to more than 100 countries [14] with Jalandhar as the major centre, Meerut in Uttar Pradesh is second and Gurgaon in Haryana is third [India Committee of Netherlands, 2000].The web page of Delhi based Sports Goods Export Promotion Council of India states that, 'Issues of welfare and corporate social responsibility have been given prime importance by the sports goods industry' [13].

ECONOMIC, ENVIRONMENTAL AND SOCIAL SIGNIFICANCE OF SGI MEERUT

Total exports of SGI in 2002-03 were Rs.342.30 crore and the contribution of Meerut was Rs.100 crore [17] while in 2006-07 it was Rs. 509.46 crore and the contribution of Meerut was of Rs.126.17 crore [13].The environmental elements in the context of SGI can include developing an alternative source for raw material (agro forestry), checking and minimizing emissions to air, water and nuisance caused by odors (polish etc.), noise ( wood saws etc.), feathers and other effluents. The notions of ecological responsibility and business responsibility are similar as both reject waste and profligacy; both embrace the notion of responsible stewardship and investment of assets in order to reap greater returns in the long term [9].

It is using labor-intensive production processes, boosting employment and supporting economic growth through exports. Joshi (1991) in his study on 1000 units of SGI Meerut found 19000 workers employed in these units out of which 42 percent were skilled while 58 percent were unskilled workers. This shows that industry does not need highly skilled or literate workforce thus making it more easily accessible to the local people as an employment source.

ADVERSE REPORTS IN MEDIA

In 1995 the first reports appeared in newspapers about the large scale use of child labor and exploitation of adults in the football industry of Sialkot, Pakistan. Later it was found that the same problem exists in India [4; 3; 2; 1; 12]. For example, 'By the sweat and toil of children' highlighted the problems of working children in the sports goods industry followed by the report of Christian Aid Society, a UK based NGO and South Asian Coalition Against Child Servitude highlighted the situation of working children in the Jalandhar and Meerut based sports goods industry in 1997.As a result, these reports evoked social concern and distress while industry feared a setback in exports due to adverse publicity.

THE CORPORATE PERSPECTIVE

It was found that the corporates in the Meerut based sports goods industry are aware of the concept of corporate social responsibility. They affirm that sincere commitment to such notions need to be exercised in business. They avowedly declare and verbalize it, but the contradiction in their assertions in the total gamut of notions and the statistics manifest slackness and indifference to incorporate them into practice. They seem to be concentrating on the classical economic aims of serving self interest, promoting business and maximizing profits. Self interest, promoting business and maximizing profits seems to be their predominant concern. They pay only lip service to CSR objectives. It has also been observed that corporates in SGI Meerut do not show such sensibilities to the foreign customers also. They treat local consumers of their goods at par with foreign ones. Partnership firms show relatively greater sensitivity to CSR orientation compared to ownership firms. It has also been seen that firms established before 1987 are more prone to CSR sensibilities in comparison to firms established after that time which appear to be embedded in religious-cultural orientations of the traditional business class in India which are now losing ground to the upcoming business entrepreneurs i.e. the tendency towards charity and donations. There are other indices pertaining to stakeholder's expectations which do support this divergence in words and actions. Corporates in SGI Meerut manifest on aversion to enactment of laws to regulate their behavior and practices. They suggest voluntary incorporation of the concept. The corporates want CSR to be voluntary and not regulated by any laws.

THE STAKEHOLDERS PERSPECTIVE

There are nine interest groups identified by corporates. These identified stakeholders are customers, suppliers, competitors, governments, partners, communities, owners, investors, labor and employees. There are common needs of all the groups. They are all affected by the business. Some (employees) earn their livelihood from industry; others (investors) earn returns on their invested money. Thus these groups have common and specific interests. They want themselves to be involved in the decision making process. They also expect corporates to accommodate their concerns in business. They further expect corporates to create some institutionalized mechanism of regular interaction to comprehend their difficulties and for discussing ways to accommodate their problems. Getting a feedback would benefit the business in general.

ISSUES FOR DELIBERATION

1. Does S.G.I.M need to distinguish between philanthropy and compliance to worker and environmental standards?

2. The adoption of standards should be either voluntary or compulsory in the given social, political and economic environment.

3. In the global informal economy, a company's competitive advantage comes from intangible assets: knowledge; brands and reputation; the trust and loyalty fromcustomers, employees, shareholders and other interested parties. Can CSR be an answer? How?

Subject: Social responsibility; Sporting goods; Stakeholders

Location: Meerut India

Classification: 8600: Manufacturing industries not elsewhere classified; 2410: Social responsibility; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 200-204

Number of pages: 5

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600079

Document URL: http://search.proquest.com/docview/745600079?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 38 of 100

SECTION 3. FOCUS ON CORPORATE GOVERNANCE, BUSINESS ETHICS, CORPORATE SOCIAL RESPONSIBILITY AND ENVIRONMENTAL CHALLENGES - Chapter 19. ASHA: The Twilight of Hope

Author: Sodhi, Kamaljeet; Ghosh, Ranjai

ProQuest document link

Abstract:

As Khusbu walked out of ASHA, a NGO for the people, by the people and of the people, Mohan Roy, Executive Director, was in a depressed mode. He felt that education had become too easy, as the younger generation did not want to learn and grow, but desired instant gratification. As Khusbu spoke to her former colleagues of ASHA, they all confirmed that none of the coordinators stayed for long. As the community had a vice like grip over Roy, he could never see beyond the community. Kiran was very happy when she reached home. When Khusbu left, she had left her doors wide open for a new coordinator, the first girl who rose from the ranks to be a coordinator. ASHA, though an NGO, was as popular as an MNC in its area: it provided a well paying job, a safe environment for work and had a gem of a boss. ASHA had been in the locality for 10 years , but had not grown in proportion to the projects. It had grown only horizontally. As the donors found no suitable person to take over after Mr. Roy, who would take the responsibility. Roy's family is well settled, his son comes for a few months, but father and son are poles apart , and the son parts ways in not-so- nice surroundings. Roy is looking for a successor, but today's youngsters do not have patience. Roy is in his 61 st year, and, is a tired warrior. [PUBLICATION ABSTRACT]

Full text:

BACK GROUND: PASSION TO MISSION

Mr. Mohan Roy left his job a decade ago to serve the people, and it soon transformed from being his passion to becoming his mission. When he started he was alone, looking for a community to serve and making a difference in their lives.

He identified a minority dominated area which was very poor, decrepit and disease was rampant; it was like a very new and challenging place for him. With sheer dint of patience, hard work and sustained efforts over the years, he emerged as a boon for them. The leaders of the community first looked at him with suspicion. Later, they gradually welcomed him, and with the passing of time, some members of the community also felt that he was a money bag for them.

ASHA was envisaged as a ray of hope for people living in a minority and utter poverty, where illiteracy was the icing on the cake. "ASHA" was looking at Reproductive and Child Health Care of the Mother and child. RCH as it is generally referred to in medical terms. Later, as ASHA grew, it also got an Irish embassy funded project for a year.

In the mean time, Roy realized that the community was suffering from major health problems in women, not only due to malnutrition but also because they were indulging in sexual activities with multiple partners. The locality was filled with migrant labourers who needed an outlet for sexual requirements, and many housewives became partners willingly or unwillingly, sometimes for economic benefits as well. Mr.Roy was really perturbed when he saw even teenagers or girls who had just reached puberty, had been affected by sexually transmitted diseases or reproductive track infection. A person, who was committed to serve society, understood that if not prevented, the people of the community might be very susceptible to HIV/AIDS. He tried his level best to get a HIV/ AIDS prevention project from the Delhi State AIDS Control Society where the targeted intervention project, called TI project, was meant for migrant workers, or for people who might have indulged in the flesh trade. Given the project area and requirements, it was not very easy to convince the donor agency to understand and empathise with the plight of the community. With commitment and conviction, Mr. Roy was able to get the project. He virtually had to snatch the project from the donors.

OPPORTUNITIES AT ASHA

Targeted intervention gave rise to the hope of bringing the real ASHA into the life of the people, as it gave them a job opportunity in the form of:

* Community Worker: Who would mobilize the community

* Peer Educator: A person who would be a part of the NGO, staying in the locality and working as a spokesman of the organization

* Project Coordinator: Two or three persons who would hold meetings in the community, mobilize and supervise the work of the 2 two profiles as shown above.

* Outreach Worker: Who would look into the distribution of contraceptives and who would offer specialised help to male truckers and drug addicts.

* Project Head: A person who would be responsible for the execution of the entire project.

In an area rampant with corruption and people seeking favours, he was a whiff of fresh air where his honesty, integrity, selflessness could not be compromised by the people trying to get their share of the cake - in the form of favours, money, power or a job. Roy had a tough time initially to get people to understand that he was not a money bag and that he was funded by his past savings, and had even borrowed from his son and wife. His former colleagues also helped him out in the form of physical presence, helping him in their spare time or on weekends. He also used spare furniture for his startup and even faced the wrath of local hoodlums and political bigwigs. Soon he found a comfort level in the community, where his age helped him to work with women in the community. He came to be considered a father figure and a guiding force.

EMPOWERMENT OF THE COMMUNITY

Roy never compromised and hence he could never be manipulated. He modeled his NGO in the form of empowerment of the community. Thus, people from the community were trained and addressed by him personally, where he could nurture their talent. In the due course of time, talent flourished and like an artist he could see that people from the under privileged sections too had tons of talent - inspiration, appreciation and guidance made them a force to reckon with.

Roy never compromised and hence he could never be manipulated. He modeled his NGO in the form of empowerment of the community. Thus, people from the community were trained and addressed by him personally, where he could nurture their talent. In the due course of time, talent flourished and like an artist he could see that people from the under privileged sections too had tons of talent - inspiration, appreciation and guidance made

them a force to reckon with.

He perceived the following challenges:

* The minority community he worked for, were quite closed to new ideas. Perhaps a rank outsider might not be welcome

* The outsider may or may not be successful as he would be quite alien to their needs

* The impact of a rank outsider coming to discuss their problems might create a kind of uneasiness in the community

* Even common problems like eve teasing or inappropriate behavior could be dealt with tact and maturity if the girls or women were from the community itself

* The people living in conditions which were not very hygienic, conducive to education and growth could only be understood by an insider

* Participation from the community would give them a livelihood and a source of income

* Many a time two members from the same family worked together (it might be mother and daughter, two sisters, sister in laws, even cousins) in teams, lending further credibility to the organisation to appreciate the correct perspective

* ith more than one person from a family led to dominance by ASHA in the community, it literally brought a ray of hope to the people

* ASHA which started giving economic independence to families was respected by not only the family but also by the community

* The NGO became a training ground for young aspirants and it was a natural progression that the young generation would join the older ones in office jobs and this aspect was taken for granted.

With time, ASHA grew and expanded and it needed professionals to run it. Donor agencies were impressed no doubt by the participation of the community, but they were looking for structured systems guiding the work. Policies were needed in black and white. Donor agencies needed some kind of professional training to be imparted to the community workers. The need for a buffer between Roy and the community became more evident.

This was not taken kindly by the community; they found this to be an unnecessary pressure being created by the donor agency on Roy to recruit officers. Roy a highly experienced man in this field, understood that time was ripe to introduce fresh and young blood and he knew other than a handful, most of the community workers did not have merit or the mettle to be a full fledged project coordinator.

Roy is an emotional and honest man. In the last 6-7 years of his up hill struggle could only be successful due to the companionship and reverence of the community, and the faith and trust developed in due course of time. Shikha an old timer with ASHA, someone in between a project coordinator and community worker has been longing to be a project coordinator. She was welcomed by the community, who loved and liked here, but she did not possess merit or mettle. Shikha though limited in resources had great ambitions for herself; she wanted to be the second in command after Roy.

ROY'S SON CLAIMS THE CROWN

Roy wanted to have his son inducted as the second man. He was professionally qualified and experienced in the industry, but the NGO sector was not his chosen profession. He joined reluctantly. Rajat went with his father(Roy) and was welcomed, but not happily or heartily; the community workers were a bit disoriented with his arrival. Rajat was a person with great gut feeling and within a couple of days he realized his father had been taken for a ride, and his observations were:

* There was no sense of discipline in the office or amongst the work force

* There was no accountability of the people who were working

* The systems were not in place; it was more individual centric than process centric

* There was rampant corruption amongst people, they stole or destroyed property even misappropriated it claiming ignorance.

* Roy, being an individual, could not be at all places at the same time; they stopped correct information from being passed on to him.

* Shikha and others showed or passed on information which was manipulated to suit them

* n the name of meeting and training people, they would while away time. More of emotional content was discussed than work related issues or problems.

THE CONFLICT

When Rajat wanted to start putting the things in the right perspective, and wanted his father to know about it, Roy told him to be patient and advised him that he needed to learn the trick of the traks. Roy informed him about numerous dimensions and networking. Roy's pet dialogue was "working in an NGO is not a easy task son".

Rajat and Roy started arguing even on terms about the execution of projects and accountability. Roy gave certain powers to his son, which he executed with resolve. These were not taken very kindly by the community. People had to come at a fixed time and go at a fixed time. The workers had to inform about their whereabouts. Lunch timings were controlled. There was uneasiness.

The main work force comprising of male workers did not like this system and quietly informed Roy that they wanted to leave after a certain period of time and after inspection of projects. Roy listened to them, spoke to the female workers to understand what they also thought about the situation? The females did not want to leave, but felt that they could manipulate Rajat, a young guy, who was not a threat to them. Roy did not discuss this with Rajat. Rajat as an intelligent person could sense that some thing was wrong.There ensued long arguments, in the car, drawing room, and over the dining table. Soon other family members joined in. Rajat felt suffocated in the discussions that followed and looked heavenwards. Soon he realized that his father was aware of all the happenings and he himself was reluctant to change. He remembered that often his father committed to take corrective course of action, but faltered on reaching his office.

Shikha, who was like a daughter to Roy, felt her days were numbered when her inefficiency and manipulative techniques were discovered. But Roy was not ready to let her go. She could not cope with structured work practices, and some of the community workers left. This led to intake of fresh blood in the form of professionals.

Rajat got the biggest shock when he realized that even his father would not listen to anything against the community and went along with their whims. The coordinators felt similarly stifled, as community workers either tried to manipulate them or coerce them.

Rajat being too much of a professional, created a separate camp with coordinators, whereas Roy remained the community man, who loved, cared and sympathized with them.

New recruits as project officers were made to say sorry to the community people, or they would boss over them. Roy suggested a compromise whereas professionals would look into project implementation and he would look into administration. But administration was carried out based on sympathy and empathy. Thus, sometimes all were dissatisfied.

One day Roy and Rajat had an open confrontation and Roy left in a huff. Rajat took it as an insult and vowed never to be back. Soon project officers, who were MSWs from different universities, and gullible for this wily bunch of people, left soon after. As the community dictated terms, young professionals , either too young, or too impatient to tackle the situation, felt disillusioned.

Roy recruited people through references, through advertisements or took a risk by recruiting freshers, but they proved to be an impatient lot. He never realized that he always trusted them less than the community, and could never galvanize their energy to achieve the larger goal of serving the community.

The shortage of quality was filled by quantity from the community, to whom people generally related and depended on. ASHA thus grows only horizontally rather than vertically, leading to a situation where it cannot be self sustaining in the long run. Roy works as a lid of the cauldron, but for how long, as the attrition rate of coordinators or project managers has had a wrong impact on the general image of "ASHA".

Constant attrition of coordinators has led to increasing dependence on the community. Besides, it has led to unsystematic approaches, which when tried by the new coordinators to be corrected has led to resurgence. Roy considers that education and professional qualifications has led to the emergence of new breed of young stars that are confident and brash, who want to do things quickly and are not ready to slog the hard way. Roy is of the opinion that these people do not want to learn, create unnecessary organizational conflict and unhappiness. Mr. Roy has seen that even the community and people are at loggerheads with the new breed of professionals, but he always teams up with them, as he feels that the project is for the community, and the community cannot be ignored or pushed back. As a man of ideals, he feels one day some one would come up from the community who would be able to be the bridge between the professionals and the community workers.

Mr. Roy now hopes that this day comes quickly as he is a tired man fighting different battles all alone.

ISSUES

* Why does no one stick around ASHA for long?

* Why does the community have such a hold over Roy?

* Why are coordinators are not learning at ASHA?

* How does ASHA grow vertically?

Subject: Nongovernmental organizations--NGOs; Expansion; Case studies; Projects; Social responsibility; Community service

Location: India

Company / organization: Name: Asha; NAICS: 813212

Classification: 2410: Social responsibility; 9110: Company specific; 9540: Non-profit institutions; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 205-210

Number of pages: 6

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600178

Document URL: http://search.proquest.com/docview/745600178?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 39 of 100

SECTION 4. FOCUS ON INTEGRATION, OUTSOURCING, REBRANDING - Chapter 20. Growth Strategies at Jindal Stainless Ltd.

Author: Agrawal, Gunjan; Vivek, Kumud; Shakun, Pooja

ProQuest document link

Abstract:

Jindal Stainless Ltd. (JSL) is amongst the largest corporate groups in India. The Jindal Group is presently a US $5 billion conglomerate and ranks fourth amongst the top Indian business houses in terms of assets. Jindal Steel is one of the largest steel producers in India with 12 plants in India and two in the USA. But with growing competition, increased quality consciousness of the consumer and liberal trade policy, JSL has very little time to feel complacent. JSL has been vigilant to changes and would never let opportunities of continuing its leadership in the stainless steel sector slip off. JSL has been seriously working on revamping its entire setup and growth avenues. JSL is bound to face certain challenges in some areas: rationalized costs for plant operation, scoring high on competence, meeting individual customer requirements and providing customized solutions, penetration and expanding in foreign markets as the recognized supplier of stainless steel. This case focuses on strategies adopted by JSL with a view to grow and expand. [PUBLICATION ABSTRACT]

Full text:

AN INTRODUCTION TO JSL

The Jindal Group was founded by O.P.Jindal. Ratan Jindal, his son is presently the Vice Chairman and Managing Director. He started his career by trading in steel pipes in Nalwa, a village in Haryana. In 1952, O.P. Jindal set up the group's first factory at Liluah, near Calcutta for manufacturing steel pipes, bends and sockets. Soon thereafter, he set up a similar manufacturing unit at Hissar. In the early 1960s, Jindal Steel achieved a breakthrough when it developed India's first 100 percent indigenous pipe mill at Hissar. In 1970, O.P. Jindal established Jindal Strips Limited and set up a mini steel plant at Hissar to manufacture coils and plates through the electric furnace route. Since then, Jindal Steel has not looked back and has gone from strength to strength. Today, the group has developed into a multifaceted organization with revenues in excess of US $5 billion.

CONSTITUENT COMPANIES OF JINDAL GROUP

Jindal Stainless Ltd.: Jindal Stainless is the largest integrated stainless steel producer in India and the flagship company of the Jindal Group. It is an ISO: 9001 & ISO: 14001 company. Jindal Stainless Ltd. has plants at Hissar and Vizag and is setting up a greenfield integrated stainless steel project in Orissa with a capacity of 1.6 million tones per annum. Jindal's plant at Hissar is India's only composite stainless steel plant for the manufacture of stainless steel slabs, blooms, hot rolled and cold rolled coils, 60 percent of which are exported worldwide. Jindal has a ferro alloy plant at Vishakhapatnam and has an installed capacity of 40,000 metric tones per annum.

Jindal Steel & Power Ltd: JSPL is one of the leaders in steel manufacturing and power generation in India. JSPL is the largest private sector investor in Chhattisgarh with a total investment commitment of more than Rs. 10,000 crores. It is also setting up a 6 million tonne steel plant in Orissa with an investment of Rs. 13,500 crores and a 6 million tonne steel plant in Jharkhand with an investment of Rs. 15,000 crores. Jindal Power Limited, wholly owned subsidiary of JSPL, is setting up a 1000 MW O P Jindal Super Thermal Power Plant at Raigarh, with an investment of over Rs. 4500 crores. JSPL has also ventured into exploration and mining of high value minerals and metals, like diamonds, precious stones, gold, platinum group of minerals, base metals, tar sands etc.

JSW Steel Limited: JSW Steel Ltd is a fully integrated steel plant having units across Karnataka and Maharashtra producing from pellets to colour coated steel. JSW was founded in1982, when the Jindal Group acquired Piramal Steel Ltd which operated a mini steel mill at Tarapur in Maharashtra. The Jindals, renamed it as Jindal Iron and Steel Co Ltd (JISCO) now known as JSW Steel Limited (Downstream). To achieve the vision of moving up the value chain and building a strong, resilient company, in 1994, JISCO promoted Jindal Vijayanagar Steel Ltd (JVSL) now known as JSW Steel Limited (Upstream).

FINANCIALS AT JSL

Major financial performance parameters are as follows:

PRODUCTS OF JINDAL STAINLESS STEEL

Upto 70 per cent of stainless steel produced in India goes into making utensils for household consumption. Families in India have a preference for metal utensils as against use of nonmetals such as plastics, bonechina or glass. Stainless steel keeps a shine for longer life, is easy to wash and polish and is preferred to brass and copper which get oxidized easily and lose luster of newness. Stainless steel utensils have are versatile in usage and are used in all types of Indian cooking. Outside India, stainless steel majorly is used in construction and transport work, where stainless is often the least expensive material option.

Other product forms include,slabs, blooms, HR coils, hot rolled annealed and pickled coils, hot rolled annealed and pickled plates, and cold rolled coils and sheets in different finishes 2D, 2B, No3, No4 and BA.The company is the exclusive producer of stainless steel strips for making razor blades and surgical blades in India. The plant has a capacity to produce 10,000 metric tonnes per annum.

An early starter in India's steel service centre industry, Jindal Stainless Steelway Ltd. was established in collaboration with Steelways s.r.l. Italy, to provide customized products and distribution services in stainless steel to meet specific requirements of slitting /CTL/ blanks, for customers across consumer durables, automotive segments, OEMs and is the largest supplier of coin blanks to the Govt. of India mint. JSL has two service centers in operation at Gurgaon and Mumbai and an additional two centers are under commissioning for just-in-time delivery services.

PLANT EXPANSION SCHEMES

GDP growth in India is expected at the rate of 8-9 percent. The country has to go a long way in developing the infrastructure to meet sustained growth. Jindal Stainless is poised to take advantages of this growth potential as it is the largest producer of stainless steel in India.

In order to take advantage of the new demand for stainless steel from the infrastructure segment, the company plans to expand its downstream facilities which would include further strengthening of Jindal Architecture Limited, Austenitic Creations Limited & Jindal Stainless Steelways Limited. The company is in the process of further extending the network of service centers within India and globally for value addition and catering to the local customers' need. The company has also undertaken certain BOT (Build Operate & Transfer) contracts wherein unique modeled stainless steel street furniture has been fabricated and installed in New Delhi for further beautification of the city, gearing up for the Commonwealth Games 2010. The company has also taken certain CSR initiatives to further enhance the landscaping of New Delhi using stainless steel in public display.

Another key aspect of the company's performance is its ability to produce cost effective products and have flexibility to meet market requirements. This is being well supported by the company's own R&D and market research. JSL is a pioneer in producing 200 series Cr-Mn stainless grades in the global market.

The cold rolling capacity at Hissar is being expanded from 1.5 lac tones to 2.75 lac tones per annum. The capacity of the special products division which produces value added products like precision strip and coin blanks is also being increased from 15,000 tonnes to 30,000 tonnes.

Expansion at its subsidiary PT Jindal Stainless in Indonesia is already underway and the cold rolling capacity is being enhanced from 65,000 tonnes to 1,50,000 tonnes. A new bright annealing line is also being installed.

MARKET EXPANSION PLAN

Jindal Stainless is currently exporting to over 40 countries with approximately half of the revenues generated by sales in overseas markets. It has already set up marketing offices in China, Korea, Vietnam, Indonesia, Ukraine, Poland, Russia, Italy and the USA and plans to further expand its marketing bases.

The company is focusing on servicing customized demands through its subsidiary Jindal Stainless Steelway Limited, a JV with Steelway, Italy, from its plant at Manesar, Haryana. Service centers provide customized products and distribution services to meet specific requirements of slitting/cut to length/blanks for customers in the consumer durables, automotive segments and OEMs. After successful operations at Manesar, the second plant near Mumbai is in operation from July 2007, this would be followed up by one in Chennai and others in Gujarat and overseas.

REINING RAW MATERIALS AT KEY STRATEGIC LOCATIONS

As a part of upstream integration strategy and to develop reliable long-term resource base for sustainable operation of stainless steel business, JSL looking for availability of various mineral ores globally either by way of acquisition or by entering into joint ventures. During the last year, the company acquired certain ferro chrome resources in Vietnam and Turkey through its subsidiaries and are further concentrating on acquisition of some more resources in Indonesia, Turkey and other parts of the world. Moving forward priorities will continue to maximize our shareholders' values by becoming the most cost effective stainless steel producer worldwide. Although the company is optimistic about the global stainless steel demand, especially demand coming from Asian countries like China and India, the company is working towards creation of integrated chains which can take on the impact of the global uncertainty. Fluctuations in demand and supply situation would also at the same time focus on attaining an optimal capital structure for sustained growth and liquidity in an environment of uncertainty of global financial markets.

In the areas of minerals and metals JSL has entered into an JV agreement in Orissa with Mahanadi Coalfields Ltd, a subsidiary of Coal India Ltd. to mine Utkal A- Gopalprasad Coal Block West project, located in the Talcher Coalfield of Angul district.The agreement aims to meet the coal consumption of the JSL power plant in the state. Internationally, JSL has signed an MoU in Vietnam, to set up 20, 000 TPA ferro chrome plant in the region.

As part of upstream integration strategy, JSL is actively pursuing opportunities and seeks to acquire rights in India and overseas, by purchasing and operating its own mines, and indirectly, by investing in companies with access to mining rights. JSL has already established a subsidiary in Turkey for acquiring such resources

Capability to be able to rein in raw material sources for any kind of production renders substantial advantage for manufacturers across verticals. JSL scores ahead with ability to rein in most sources of raw material inputs and costs and has successfully been able to contain most of the market volatility due to market and material price hikes to a large extent. With strong integration through its captive mines and long-term sourcing arrangements along with ferro-alloys operations, JSL leaps forward with both cost and quality advantage and is underway gaining new grounds in both domestic and global mining arenas.

INTERNATIONAL JOINT VENTURES

JSL has signed joint ventures with PT. Antam Tbk Indonesia for Nickel Smelting Jindal Stainless has signed a joint venture agreement to develop a nickel smelting and stainless steel facility in North Konawe, South East Sulawesi. Antam will have a 55 percent interest in the project with Jindal owning a 45 percent share. Initially the project is planned to have a capacity of around 20,000 tonnes per annum (TPA) of contained nickel in ferro nickel and approx. 250,000 TPA for stainless steel, mainly the high quality 300 Series; with this strategic partnership, JSL is poised to become one of the leading players in the stainless steel industry globally.

JSL has partnered with the Government of Vietnam for setting up a ferro-chrome manufacturing plant - Jindal - Nong Cong Ferro Chrome Company Limited; the project envisages production of ferro Chrome with a capacity from 60, 000 TPA going up to 200, 000 TPA, with full equipment and commissioning. The JV is a step towards JSL's expanding footprints across key markets across the globe to ensure its raw material requirements in a highly competitive time to come.

JSL signed yet another joint venture with Fagor Industrial to develop a service centre for steel sheet formats in Spain. The joint venture envisages an unique service centre to be called JSL España, S.L., which will produce custom-tailored formats for the Spanish market, with rolls imported directly from India.

This is Jindal Stainless' first cutting facility in Europe and signals the company's entrance into the Spanish and European markets as supplier of steel sheet formats instead of rolls.

JSL CREATING LEADERSHIP, EXCELLENCE AND NURTURING TALENT

People partnership at JSL has been strengthened by the company moving beyond the statutory requirements of providing welfare amenities and social security measures. Schemes of highly subsidized education and health benefits at the grass root levels have reinforced core values of "Respect & Care". The hallmark of JSL HR practices is to develop a winning employee value proposition, with significant emphasis on individual development. Development at JSL is addressed towards building adequate change response capabilities in the fast changing business scenario.

The desire and ability of the employees to continually upgrade skills and rapidly convert this learning into a value stream is the ultimate competitive advantage. In an effort to institutionalize learning, JSL maintains a well-equipped knowledge center and many other learning initiatives for employees. Talent management and creating a robust talent pool makes for key growth drivers for JSL. To realize this effort, JSL HR introduced initiative LEAP: "Leadership Enhancement for Accelerated Performance" which is competency based and accounts not only performance but also individual potential.

CHALLENGES AHEAD FOR A SUSTAINABLE GROWTH

There are several issues which remain unattended. With the intense completion in this sector, much will depend on the quality of products and perceptions of customers on services rendered. Cost is yet another important factor.

Most of the steps initiated to grow are directed for achieving horizontal and vertical integration as also to enter new markets. Will these steps suffice?

JSL also does not have a strategy to diversify in the non steel sector. Is this justified?

Subject: Case studies; Steel industry; Business growth; Strategic management; Stainless steel; Expansion

Location: India

Company / organization: Name: Jindal Stainless Ltd; NAICS: 331111

Classification: 2310: Planning; 8660: Metalworking industry; 9110: Company specific; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 213-217

Number of pages: 5

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600084

Document URL: http://search.proquest.com/docview/745600084?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 40 of 100

SECTION 4. FOCUS ON INTEGRATION, OUTSOURCING, REBRANDING - Chapter 21. KMA Remarketing Corporation

Author: Chaubey, Manmohan D

ProQuest document link

Abstract:

KMA Remarketing Corporation (KMA) was founded by Dana Smith and Bill Boyle in 1993 in Du Bois, Pennsylvania. The company is primarily engaged in the purchase, resale, service, appraisal and liquidation of pre-owned medical, dental, ophthalmic and emergency medical equipment. The cornerstones of KMA business values are integrity, diligence, cost containment and quality products. Mr. Smith is the President and CEO of the company and Mr. Boyle is Vice President and the CFO of the company. They both have a background in emergency medical services. They realized that there is great demand for affordable and quality medical products. They also knew that there is a tremendous amount of used equipment available in the US and Canada. They set up their business to acquire equipment, recondition and market it. The company also offers medical equipment appraisal and liquidation services. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

The company experienced rapid growth and acquired office and warehouse space in Du Bois. KMA uses direct marketing, e-marketing, trade shows and has customers in nearly forty countries. KMA has expanded in the area of biomedical equipment resale, calibration, certification and servicing.

The current economic crisis has an impact on the company. Hospitals are postponing their renovation plans, and customers have cut down on capital expenditure. Thus, both supply and demand are down. The proposed legislation on health care reform is likely to be a positive for KMA, since it will put pressure on hospitals and clinics to lower their costs. KMA is in transition from a startup company to a professionally managed and profitable organization, providing the highest level of customer satisfaction. KMA has initiated a strategic management process. It sees growth potential in its biomed business. It is focusing on employee development, and has expanded its efforts for finding new customers in the growing Asian markets. It is also focusing on better financial, human resource, and aspects of operations management to improve profitability.

THE START-UP

Dana Smith saw an infomercial on TV, which was selling a system of buying cheap in auctions and then selling for profit. The infomercial was holding a seminar in Pittsburgh, PA. The date coincided with a gun and hunting show, so Dana and Bill decided to attend it. At the end of the seminar, the infomercial's courseware was available at a reduced price, and they decided to buy it. One attractive proposition of the infomercial was that of co- venturing. Under the plan, if the customer of the program did not have money to buy during the auction, the infomercial company would put up the money at a 80-20 profit sharing agreement.

For the next few weeks, Dana and Bill listened to the infomercial tapes and read books. The advice to them was to attend various auctions to get a feel of the market, but not buy anything. They made rounds of many auctions for government, military surplus items, as well as bankruptcies, but did not bid for anything. Eventually they bought a movie rental business in a bankruptcy auction, and sold the goods for a US$1,500.00 profit.

They were not yet settled about the products that they would like to buy and sell. The first Gulf War of 1990 had created large military surpluses in medical equipment. By their attendance at auctions, they saw the availability of medical equipment in military auctions. Given their background in EMS and familiarity with the products, they looked into this area. Their first auction purchase was a batch of biohazard containers. They faced some problems in packaging, etc, but eventually sold the product to hospitals and EMSs. They also made contact with a medical equipment dealer in California, worked with them to bid on uterine evacuation tubing, and sold the product for a good profit. They were now decided on medical equipment and products as their line of business.

THE BACKGROUND

Dana Smith was a health and physical education teacher in a local high school. He was also a coach in the athletic program. He worked long hours - 10 to 15 hours a day. In addition, he worked as a paramedic with a local EMS company. Bill Boyle was also a paramedic. Bill still keeps his scanner on, and listens to EMS radio conversations. The high school system and its bureaucracy did not agree with Dana's education philosophy. In his own words, "Paramedic is a younger person's game." He began to think about a career change. Initially, he thought about opening a sporting goods store, or a gym. However, because of capital requirements and the risks, he did not venture into those businesses. They established KMA in 1993 as a partnership including themselves and their spouses.

KMA was launched in Dana's home. Dana took sabbatical leave from the school to test out the waters. They felt comfortable with auctions, but were not sure of the market potential, and whether they could sell the products. The business grew and Dana took early retirement from his teaching job. They rented a warehouse in a nearby town of Punxsutawney. They rented office space in a commercial building in Du Bois, but the business soon outgrew it. The distance between the business and the warehouse soon became a problem, so they bought a warehouse in Du Bois in 2001. The Du Bois warehouse building was renovated to provide office space and storage facility.

1998 was a financial disaster. Expenses were rising and the business was not big enough to support the expenses. Dana decided on expanding the business, and entered new lines of business.

When the company entered direct sales business, it became necessary to display products in an appropriate facility. Customers did not like to see products in a warehouse setting. Part of the warehouse was converted into a showroom. Two adjacent properties were purchased. One of them houses incoming products. This facility is also used for refurbishing furniture. It houses carpentry and a mechanical shop, along with upholstery and paint shops. The bio-medical shop is also located in this building. The third facility, currently, is not in use. The biomedical unit of KMA is a growing business. The plans are to move the entire biomedical operations to the third facility once additional space is needed.

FINANCES

The company was founded as a partnership. As capital needs grew with the growth of business, KMA was converted into a C-corporation. The original partners own 60 percent of the business and friends and other family members own the rest of the company. Dana and Bill plan to convert to an S-corporation, once they can payback family members whose financial support helped start the company. The company needs more capital to finance its purchase operations. KMA does not feel that it can get more capital from its present partners/owners. It would like to establish a line of credit with a bank to finance its operations. The present financial crisis has made it very difficult to obtain loans/credit through banks.

LINES OF BUSINESSES

The company currently has five lines of businesses. All of these lines deal in similar products that provide different revenue streams. The company acquires used and surplus medical assets through direct purchases, through successful bids at auctions, as consignment, or through liquidations. It services and reconditions the products and sells them through the internet and through a direct sales force. KMA recycles what it is not able to sell.

LIQUIDATION

Liquidation opportunities arise when a hospital, or a medical clinic goes out of business. The seller offers all equipment, both medical and non-medical, for sale as one lot. Liquidation provides opportunities for buying medical equipment at extremely low prices. However, such equipment could be in poor condition and may need extensive servicing and reconditioning, before it can be sold. When hospitals and medical clinics shut down their equipment which may be auctioned to provide residual value, or pay creditors. KMA participates in bidding for the equipment, and if successful, dismantles and removes all equipment from the premises. The equipment is crated and shipped to KMA's warehouse.

CONSIGNMENTS

Hospitals and medical clinics may periodically renovate their facilities and replace old equipment, furniture, etc. They may be willing to place the items with a consignment seller. KMA accepts consignments and sells them to other customers. The consignee (KMA) gets a cut from the proceeds. Many consigners charge the consignees for storage, if the items do not sell in time. KMA quotes a fixed charge (percentage) for its services and does not add on other costs. This makes KMA a more desirable consignee. Consignments account for 30 percent of all products they acquire.

PURCHASE

There are occasions when a hospital, or a clinic, simply wants to sell its used equipment, or surplus items. The sellers may want to sell these items because they may be understaffed, or lack storage space for them. Selling assets also provides the medical facilities funds to manage within a tight budget. KMA will make an outright purchase of these items and resell them. This is similar to bidding in an auction. KMA also enters into contracts to manage (purchase) surplus assets at a fair market value over a period of time.

APPRAISAL

There are situations in which a hospital or a medical clinic needs to ascertain the value of its assets. In cases of bankruptcies, bankruptcy courts require an appraised value of the facility's assets, before the settlement of the bankruptcy. When ownership of a medical clinic, or practice, changes, appraisal of its assets may be needed to determine the value of the business. Appraisal is a very common thing in real estate deals, and there are many real estate appraisers available in all parts of the country. Similarly, there are appraisers in industrial fields. However, there are not many qualified and certified appraisers available in KMA's field. Dana Smith and Laura Ross are certified appraisers. The appraisal fee is assessed based on estimated time it will take to do an actual inventory, assign a value to the goods, and the cost of travel, etc. The size of the business, in terms of numbers of appraisals carried out is given in Table 1:

BIOMEDICAL

Hospitals and clinics use many instruments and devices to monitor patients and administer care. These devices need periodic maintenance and servicing. Used devices that KMA acquires through auctions, liquidations, or purchase, are brought to the DuBois warehouse. KMA has technicians who evaluate the device, service and repair it, recalibrate it and then certify it as functional according to specifications. The devices are then resold. Maintenance agreements account for 5 percent of total sales. The services provided by the biomedical unit include:

* Equipment de-installation, removal and reinstallation

* Equipment repair - onsite or mail-in

* Comprehensive service contracts

* Routine preventive maintenance

* Equipment refurbishing/restoration to new like condition

* Electrical safety checks

* Replacement parts and service/operators' manuals

SALES

KMA sells new and refurbished products and medical equipment to meet virtually all needs of a hospital, healthcare facility, or a medical practice. All products include a KMA warranty. If a customer needs new equipment, KMA will quote for it. New equipment sales account for only 3 percent of total sales. KMA uses direct sales for cold calling hospitals and clinics. They also conduct B2B sales to other dealers. There are specialized medical websites where new customers can be found. Internet sales through their own website and eBay are critical for international sales.

The range of products and equipment is extensive and is listed in Table 2:

ORGANIZATIONAL STRUCTURE

HUMAN RESOURCE MANAGEMENT

There is no separate HRM function at KMA. The managers makes all employee decisions. As mentioned earlier, both the founders of the company have an EMS background. Dana Smith hired people whom he knew from his EMS days. According to Dana, EMS people work hard, are team players, work long and irregular hours, and do whatever it takes to get the job done. The strategy has been successful, and employees have a great degree of commitment to the company. There are 25 employees in the company.

INTERNATIONAL BUSINESS

The company is active in the international marketing of its products. It all started accidently. They were at an auction, bidding for hospital beds. They lost to a buyer from the Philippines. The Philippine buyer, however, ran into problems in shipping the goods to the Philippines. Dana had kept in touch with his rival, and the rival asked for their help in shipping. They worked with international shippers and got the beds to the Philippines. This helped them develop an international connection and they now export to customers in forty countries. Their main international customers are in the Philippines and Mexico. KMA uses trade shows, its own website and eBay to sell internationally.

STRATEGIC PLANNING

KMA does not have a formal written down strategic plan. It does not have a formal written vision or mission statement. The company shares the implicit vision of its founders. KMA does set objective goals for its operations on a yearly basis. It plans to grow at the rate of about 30 percent per year, but has experienced virtually no growth for the last two years. KMA has started to implement a formal strategic management process, but their energies are currently engaged in dealing with the tough economic environment.

The company has a clear values statement which prominently appears on their website and in their product literature. KMA values are integrity, diligence, cost containment and quality products.

PRESENT SITUATION

The Economic Downturn: The last two years have not been particularly good for the company. KMA has experienced a flattening of its revenues and profits have suffered. The economic downturn has affected both sales and the availability of medical equipment and assets. Recession has made the hospitals and medical service companies very cost conscious. They generally have postponed, delayed or scaled back their renovation plans. They are also managing their inventories more prudently to minimize surpluses. As a result, KMA has not been able to acquire enough products to sell, to meet their sales goals.

The customers of the company have also been affected by the economic downturn. They too have postponed, or scaled back their plans to replace their equipment. As a result, there is less demand for KMA products and services. There is also a downward pressure on what the customers are willing to pay. As a result, KMA's business has suffered at both ends of its supply chain.

KMA's revenue in 2001 had reached US$ 1 million mark. By 2003, they grew to US$2 million. However, in the period 2007-2009, they could achieve US$2.7 to US$2.9 million. The goal for the company for 2009 has been at US$3.5 million. However, it appears that this goal will not be met. At the same time, when sales are stagnating, the company's cost structure - including office, showroom and warehouses - is geared for a larger size operation. The company has all the resources in place to increase its sales and profits. The economic environment is not favorable to realize the revenue and profit goals.

THE FUTURE

The present debate over the new healthcare legislation has created a great deal of uncertainty in KMA's business environment. Dana Smith is still very optimistic about the company's future. He sees great potential in its biomed business, and plans to expand its service operations. The company plans to enter equipment maintenance contracts with hospitals. It would offer service on "as needed" basis using its own staff. This plan seems to have great prospects. Hospitals and clinics have great incentive to reduce costs, and they are willing to outsource this service. KMA can schedule its staff to serve several hospitals on a "as needed" basis. KMA can utilize its staff more efficiently, thereby keep its customers' maintenance and servicing costs down.

KMA also believes that its business will get back to its growth trajectory once the economy shows signs of improvement. An economic upturn will bring back the supplies, and hospitals and clinics will begin replacing their old equipment. This will improve the availability of used equipment, as well as sale of refurbished items. Old equipment being used in hospitals will eventually wear out and will need to be replaced; that is what KMA is counting on.

KMA has already embarked on strategic planning. They have set an ambitious goal for themselves. With the current and the expanded biomedical services, they expect to reach US$5,000,000 within the next three years. They expect a 33 percent increase in sales next year. The company's founders want to grow the company to about US$10,000,000 in sales. The founders would like to payback the investments made by their family and friends and then, maybe, sell the company at a good price.

ACKNOWLEDGEMENTS

The author would like to thank Dana Smith, Ken Allshouse, Bill Boyle, and Laura Ross of KMA and Michelle Troisi for their cooperation and assistance in the preparation of this case study.

Subject: Case studies; Emergency services; Auctions; Medical equipment; Strategic planning

Location: United States--US

Company / organization: Name: KMA Remarketing Corp; NAICS: 423450

Classification: 2310: Planning; 8390: Retailing industry; 9110: Company specific; 9190: United States

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 218-225

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745599965

Document URL: http://search.proquest.com/docview/745599965?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 41 of 100

SECTION 4. FOCUS ON INTEGRATION, OUTSOURCING, REBRANDING - Chapter 22. Shoppers Stop: Rebranding as 'New'

Author: Sharma, Poonam

ProQuest document link

Abstract:

Changes in the Indian corporate sector by way of increased competition and mergers and acquisitions activity, has led to an increasing number of companies to opt for rebranding. This case explores the dimensions of rebranding of Shoppers' Stop, the first retail venture by the K. Raheja Corp. Shopper's Stop brand had not evolved in line with the Indian economy, the corporate sector and customers. Therefore, the new-found philosophy of "Start Something New" started in 2007 by repositioning Shopper's Stop from being a premium retailer to a luxury one. On April 24, 2008, Shopper's Stop unveiled its new logo as a part of its rebranding strategy. This exercise was a bid to reposition itself as a 'bridge to luxury' store as opposed to its earlier image of a premium retailer. This change was just the beginning of a wave of strategic movements. Rebranding helped Shopper's Stop to connect with the customers even more strongly. Rebranding can help businesses reflect a new company direction, incorporate an expansion of product offerings, or overcome challenges. It provides an opportunity to combine the traits of the current brand used by the company and historic qualities with the new. [PUBLICATION ABSTRACT]

Full text:

NEED TO RE-INVENT

Rebranding has become inevitable for companies which have gone in for a makeover because of fierce competition, plummeting sales revenues and the need for marketing innovation. Harish Bijoor, CEO of Harish Bijoor Consultants explains the need to rebrand a company's image. "The younger generation feels jaded with old images and fonts. So, the brands want to have shades of contemporary design and style. Each brand is dictated by the whims and fancy of its customers."

A makeover may include essential changes to the brand's logo, advertising theme, or even the brand philosophy. Sometimes, it is just the need to connect with the changing times that a brand may want to change its look. 2008 saw four rebranding exercises in India in the first four months-Air Deccan, Shopper's Stop, the Godrej Group and Ceat. Rebranding for these companies involved not just a change of logo, but the adoption of a new business strategy and a renewed way of communicating with the consumer.

For instance, Shoppers Stop, aims to strike a chord with the younger generation by upgrading its appearance, along with customer services. Shoppers Stop GM (Marketing) Sheetal Choksi says, "We recognised the changing aspirations of our customers and, hence, decided on a makeover."

A new classy box has now replaced the old round black-and-white logo, and the apostrophe in its name is also missing. In addition, the store has replaced its older tagline 'Shopping and beyond' with 'Start Something New'.

This case explores the dimensions of rebranding of Shoppers Stop, the first retail venture by the K. Raheja Corp. On April 24, 2008, one of India's oldest retail chains, Shopper's Stop Ltd. (Shopper's Stop) unveiled its new logo as a part of its rebranding strategy. The chain undertook the rebranding exercise in a bid to reposition itself as a 'bridge to luxury' store, as opposed to its earlier image of a premium retailer. Commenting on the change, B.S. Nagesh, Customer Care Associate and Managing Director, Shopper's Stop, said, "Change is essential. Our consumers are changing, their preferences are constantly evolving. They are getting younger. And so, we have to change along with them. The change in identity is just the beginning of a wave of strategic movements being made in people, practices, introduction of new ways of shopping, technology investment in customer relationship management, and analytics."

HISTORY OF SHOPPERS STOP

The evolution of Indian retail began in 1991, in Andheri, a suburb of Mumbai, when the K. Raheja Corp (C L Raheja Group) began executing its vision of providing Indian consumers their first experience of shopping the way the developed world does. The first Shoppers Stop outlet opened in an area of 2800 square feet in 1991. In the early days, Shoppers Stop was a ready-to-wear men's store. It added ladies wear in 1992, and in the following year, unveiled the kids' section and accessories which included jewellery, cosmetics and watches. Shoppers Stop was now a complete department store. In August 1993, institutional sales were introduced for corporate clients; 1994 saw the launch of STOP-the first in-house brand of merchandise.

Shoppers Stop has since achieved unparalleled growth to emerge as a competent, strong and dependable brand. It has exploited its equity and leveraged its experience across a gamut of retail formats. This collective has created a basket of strengths drawn from each business. In turn, this has allowed the company to become an iconic establishment. With success and experience to support it, Shoppers Stop expanded operations outside Mumbai. Bangalore opened in 1995, Hyderabad in 1998 and Jaipur and New Delhi in 1999. Expansion was part of Shoppers Stop's original strategy. By 2001, it had entered Chennai and Pune; and in Mumbai it had opened stores in Chembur and Bandra. In 2002-03, it added four new stores including those in Kandivli and Mulund in Mumbai and in Gurgaon and Kolkata. 2004-05 was a year when Shoppers Stop opened its second stores in Kolkata, Bangalore and Pune. It also opened its seventh store in Mumbai in Juhu and made its entry into Ghaziabad - a Delhi suburb in the state of Uttar Pradesh. In 2006, Shoppers Stop entered Lucknow. In 2007, the company launched three new stores: Noida in April; in July came its 135,000 Sq. feet outlet , the country's largest at Rajouri Gardens in Delhi followed by one in Saket in December.

A year earlier, the company had launched a new format HomeStop in Bangalore. Spread across a massive 30,000 square feet, HomeStop had everything that a consumer might need for a home: furniture, soft furnishings, bed and bath linen, kitchen and dining accessories as well as decorative items. This was a first-of-its-kind offering in the home category. Today, there are three Homestops in the country. In 2007-08, the brand launched the all new format, Arcelia, in two cities Pune and Delhi. Arcelia caters to the needs of those consumers seeking high-end cosmetics, perfumes accessories, jewellery, handbags etc. This new retail concept places strong emphasis on experience and indulgence.

As of 2008, Shopper's Stop had 1.3 million sq. feet of retail space spread across 24 stores in 11 cities in India with a retail turnover of over Rs. 12.07 billion.

According to analysts, in the mid-2000s, Shoppers Stop started to lose its market value as it failed to keep pace with changing customer preferences. It faced competition from several retailers such as Globus, Westside, Lifestyle, etc., which were catering to the same segment of customers.

REBRANDING STRATEGY BY SHOPPERS STOP

It isn't just enough to be ahead of competition, but to be far ahead, according to the Shoppers Stop annual brand track and customer satisfaction index. Govind Shrikhande, Chief Executive Officer, had received repeated indications from his customers that the Shoppers Stop brand had not evolved in line with the Indian economy, the corporate sector and customers. "We then conducted a series of specialised workshops titled "Trial Room", which revealed our customers' opinion that the look and feel of the brand needed a change. We began the rebranding process about 18 months back by starting the new-found philosophy of "Start Something New" and repositioning Shoppers Stop from being a premium retailer to a luxury one," said Shrikhande.

Based on consumer feedback and market research, Shoppers Stop has revamped its entire product and brand strategy. Mr B.S. Nagesh, Customer Care Associate and MD, said: "The change in the identity is just the beginning of a wave of strategic movements which is being made in people, people practices, introduction of new ways of shopping, technology investment in CRM and analytics." The rebranding exercise, therefore, reflects a philosophy change; from being just a shopping experience, Shoppers Stop has now repositioned itself as the 'Bridge to Luxury' store. The new logo has an international look and a timeless appeal. It is a reflection of Shoppers Stop's character of being a trusted and inspiring guide in the world of fashion, a progressive and dynamic brand, which is both imaginative and a thought leader. Its core values of trust, comfort and warmth, however, remain unchanged and undiminished. Keeping in mind the entire 'Bridge to Luxury' platform, and the fact that luxury brands project a flaunt value which signifies 'having arrived' a new symbol has been created for Shoppers Stop. The symbol, created out of the initials 'SS' expresses infinite possibilities that the brand promises. The new baseline - Start Something New - encourages audiences to upgrade to the next level - and experience the future.

Changing consumer behavior and the growing demand from youngsters for trendy products made Shoppers Stop consider the option of rebranding itself. As for the 17-year-old Indian retail pioneer, Shoppers Stop decided to start something new. So, a new logo, an aspiration to the luxury tag, and here it is again, reconnecting with the young consumer.

"We always wanted ourselves to be in the age group of 30-years, but we have to ensure that we are able to relate to the 18 as well as 45. So, our group is 25-45 and we welcome 18-25. We found that they are emotionally connected. They like us but when it comes to association, they feel that this is a place where their parents go, which is 30-35 years. If this is happening today, what would happen after 10 years? So, it was important to start looking at bringing down the average age of the customers," said BS Nagesh, MD and CEO, Shoppers Stop.

It's also a need of the hour for Shoppers Stop, as it concedes it has lost ground to second movers like Future Group and Raheja's Lifestyle. While market realities may prompt rebranding exercises, sometimes a brand that is performing above expectations may also need a sleek new look. Therefore, as a part of its new philosophy of providing customers with a new shopping experience, Shoppers Stop came up with several initiatives-it planned to increase per store area from around 40,000-45,000 sq. feet to 75,000-85,000 sq. feet.

It conducted a series of workshops called 'Trial Room', to understand the preferences of consumers. It was a new concept with day and night lighting options so that consumers could check how garments would look during the day and in the night. The workshops revealed that what was needed was a change in the look and feel of the brand. For Shoppers Stop, rebranding meant not just a change of logo, but the execution of new business strategies, with the core principles remaining intact.

According to Ravi Deshpande, Chief Creative Officer, Contract Advertising which designed the new campaign for Shoppers Stop, "The retailer needed its brand idea to change to connect to younger people. The purpose was also to cut the age of the brand as fresh ideas do help in people looking differently at the brand." As a part of the rebranding efforts, Shoppers Stop came with brand makeover - looks, logo, employee uniforms, recyclable bags and all. The logo was designed by Ray+Keshavan. Though the logo was changed, the black & white color scheme was retained. That is the way it has been, since facsimiles of its maiden advertising campaign created by Contract India were received 17 years ago. It was a colour advertisement, but received in black and white. B S Nagesh, the then Chief Executive Officer, liked it so much that he decided to carry the advertisement in black and white itself. Till date, as the retail chain comes out with its first major television campaign, black and white remains the scheme. The new logo, new uniforms, new recyclable bags and the new ad campaign were all made in black and white. Govind Shrikhande, CEO, Shoppers Stop said, "It is more classical, rich and authoritative, something Shoppers' customers connect with. Black and white gives us a strong brand recall value."

The new brand identity, called 'Start Something New', had a simpler logo and the new brand philosophy goads consumers to live life a little more each day, to let their hair down and have some fun. The other initiatives included a new dress code in black and white for the employees, and training sessions for employees to help them tackle demanding customers with varied tastes.

Shoppers Stop also introduced a company anthem for the staffers penned by renowned lyricist Gulzar, and sung by popular Indian playback singer Sonu Nigam. It was played every morning across all outlets in the country as a song of celebration. To make shopping an enjoyable experience for its customers, it also launched an in-store radio in association with Blue Frog Media Pvt. Ltd. This aired music across all its stores in India while radio jockeys offered tips on fashion and wellness.

In attempting to build value from neglected touch points - and in line with its upgraded fashion retailer position - Shoppers Stop has launched a series of collectable thematic shopping bags. The first in the series is 'fashion through the ages'.

The ''bridge to luxury'' position of the brand is supported by the fact that Shoppers Stop today is gradually adding international brands such as French Connection, Tommy Hilfiger, CK Jeans, Lancome, MAC and Chanel. The tagline was also changed from 'Shopping and Beyond' to 'Start Something New' which implied that customers should try out something new and different, and upgrade themselves according to the demands of the changing world.

Shoppers Stop, has also taken the plunge into the online domain. The chain has launched its e-store with delivery across major cities in India. The site retails all the products available at Shoppers Stop stores, including apparel, cosmetics and accessories. Vivek Mathur, Customer Care Associate and Vice-President- Corporate Planning and e-commerce, says, "We are not looking at the site as a separate business. It is an extension of our brand, which has a strong presence in the physical retail segment. We want to create the same experience for our customers online."

Shoppers' Stop Ltd. is also teaming up with the Nuance Group in a joint venture to enter the Indian airport retail market. Mr. B.S. Nagesh, said, "We believe, with this partnership, we will extend our unique shopping experience to the airports and touch the lives of millions of travellers."

Shoppers Stop has also re-branded its loyalty programme, giving it a new look and name, in a bid to stand apart amid increasing competition. Shoppers Stop has the largest loyalty programme in India with a base of 2.1 lakh members, and has identified it as a key driver of sales. It will now go in for tie-ups with major partner brands every quarter. A significant shift in the loyalty programme will be the onus on privileges offered rather than mere redemption of points, which are common across loyalty programmes of all chains. The loyalty programme, called First Citizens Club (FCC), has been rechristened First Citizen (FC) and the cards have been given a new look. Gold card members will get privileges like home delivery of altered clothes and separate check-out counters. Twenty per cent of billing counters will be for FC members. Gold, silver and classic card holders can also access their accounts online on the company website and get an update on points earned.

Shoppers Stop is also looking at driving market research through its loyalty programme, which is the done thing in global retailing. Tapping buying patterns from its huge member base, the store is telling brand owners what customers want, which may translate into exclusive merchandise for Shoppers Stop. A recent example is research done for the menswear brand Zodiac. Zodiac was told what specific features gold card members were looking for, and these were later incorporated into its products for Shoppers Stop. The increased focus on First Citizen is because of the encouraging growth levels seen in acquiring new members, and the need for a key differentiator in the retail arena. Between 8,000-10,000 customers enter the store's loyalty programme every month of which close to 700 belong to the gold category. While previously, 10-20 per cent of sales were accounted for by loyalty programme members; this share has jumped to 58 per cent.

Shoppers Stop has always been alive to its social responsibilities. In its latest rebranding initiative, Shoppers Stop has planted more than 150,000 neem saplings. To encourage its clients to participate in this 'Greening of India' campaign, seed sachets are attached to all 'Life' merchandise at the stores. Besides, a series of print and television commercials in black and white with an environmental message also convey the same message.

BRAND VALUES

Based on consumer feedback and market research, Shoppers Stop has revamped its entire product and brand strategy. The rebranding exercise, therefore, reflects a philosophy change; from being just a shopping experience, Shoppers Stop has now repositioned itself as the 'Bridge to Luxury' store. The new logo has an international look and a timeless appeal. It is a reflection of Shoppers Stop's character of being a trusted and inspiring guide in the world of fashion, a progressive and dynamic brand, which is both imaginative and a thought leader. Its core values of trust, comfort and warmth, however, remain unchanged and undiminished. A new symbol created for Shoppers Stop is quiet justifiable keeping in mind the entire 'Bridge to Luxury' platform and the fact that luxury brands project a flaunt value which signifies 'having arrived'.

RECENT DEVELOPMENTS

Shoppers Stop has planned to invest around Rs 15 billion to increase the number of outlets to 48 by 2011. It has earmarked Rs.200 million for rebranding and repositioning. The advertisement budget is huge, and the management is of view that it is important to invest now to create space in the consumer's mind in the future.

Shoppers' Stop today has 24 stores across 1.5 million sq ft area, and will open another 9 to10 stores this financial year. Retail major Shoppers Stop has re-branded, giving it a new look and name, in a bid to stand apart amid increasing competition. There have been some rebranding fiascos in the past to take a lesson from, but rebranding is expected to have helped Shoppers Stop to connect with the customers even more strongly. Shoppers Stop turned profitable in Q1 of FY2010 after posting a loss over Rs 63 crore in FY2009.

CONCLUSION

Rebranding should justify the reason to enhance brand equity, and help the brand reach the next level, rather than being a fad. Bijoor stresses on the need to understand market demands and preferences. "Rebranding success depends on how well you gauge your customers' aspirations," he says.

Rebranding becomes essential in a variety of circumstances and situations. Indeed, it is important also for brands to connect with more than just consumers'. What is most important is that the external changes and their communication should be well- supported by internal preparations that are essential for matching up to the new external face. Simply having an image overhaul with no concrete changes internally is a waste. "Companies sometimes give extra importance to logo changes. True rebranding takes place when the change in the look of the company represents a change in the kind of experience its products or services provide to the consumers" says Anand Halve, founder of communication consultancy Chlorophyll. Shopper's Stop rebranding strategy has been for trying to keep up with the new challenges in the marketplace. In the end, however, consumers decide what really works.

Subject: Case studies; Brand equity; Strategic management; Department stores; Business growth

Location: India

Company / organization: Name: Shoppers Stop Ltd; NAICS: 452111

Classification: 8390: Retailing industry; 2310: Planning; 7500: Product planning & development; 9179: Asia & the Pacific; 9110: Company specific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 226-233

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600214

Document URL: http://search.proquest.com/docview/745600214?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 42 of 100

SECTION 4. FOCUS ON INTEGRATION, OUTSOURCING, REBRANDING - Chapter 23. IPL - Small Game, Big Entertainment and Bigger Money

Author: Tholia, Sonali N; Ramasubramanian, Hemalatha

ProQuest document link

Abstract:

Indian cricket, another British legacy has grown manifold and is no longer played as it was in its native land, not long ago. Indians are passionate about giving it the stature of a national game. Adding millions to sponsors and players, who are youth icons, the five day game has been reduced to three hour extravaganzas, where both the winner and the vanquished play/work with anxiety, absorption and synchronization, as millions are at stake behind each and every ball of the game. The fever is so intense and mind-boggling for people to abandon work, rest and appetite to watch the game, ball-by-ball. The Indian Premium League formed in 2007 has cashed in on this craze transforming a pastime game, into a multi-million dollar business. After two seasons, the game has quite a few lessons for Indian and international business students, explicitly and implicitly. This case study is an attempt to capture the IPL saga, its mission and the strategic advantages of this game cum business. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

From a game played for pastime, Indian cricket has grown to be a league game, a moneygrosser for the franchisees and BCCI. With DLF sponsoring the title, IPL-Indian Premier League formed by BCCI has broken all records by grossing Rs.40 crore per annum, for a five year title sponsorship. This only vouches for the passion of cricketing nations, the players, spectators, advertisers, franchisees, commentators, and the media, etc., and therefore the Indian economy. In the initial two years, the company has moved from being a part of the entertainment industry, to a robust organization, functioning on the lines of a multinational corporation, wielding its power not on cricket fans alone, but also on corporate marketing strategy. With internationalization, the game has got a new 'avatar' and has joined the bandwagon of other league games such as football, softball, baseball, dirt racing, car racing, volleyball, rugby, snooker etc with players becoming professional.

HISTORY OF CRICKET AND ITS ENTRY IN INDIA

The game of cricket has a history spanning countries and time spans. The game was called 'creckett' in 1598. As such, very little is known of the origin of the game, as it is believed it was played for fun by children in England where they created clearings in the dense woods of Norman and Saxon, which slowly got transformed into an adult game in the 17th century. From a ball made of rolled wool, to stones and sticks, the game in the 18th century used cork balls and bats made of special wood, as cricket entered the international arena. A game which was a pastime, when compared to the more raucous football and hockey, and more demanding tennis, cricket was played in the English summer months in open lawns where cattle would otherwise graze. When British colonized, civil servants migrated to manage the empire. The generals of the Kingdom took the game to wherever they went, but it got a stronger foothold in India, Pakistan and Sri Lanka than any other nation that the British ruled. Although the first cricket match was played in India in 1721, interest in the game actually developed after the formation of the Oriental Cricket Club in Bombay by the Parsi community in 1848. In 1877, the British invited the Parsis to play a tournament and by 1912, a number of games had already been played between the British and Indians.

The common Indian watched it with awe and inspiration, as it was a sport played for days where players walked rather than ran around chasing balls. Many Indians learnt the game as they learnt a lot of other etiquettes and dressing styles from the British. Formation of the International Cricket Council in 1909 was a landmark in the history of international cricket, as it took the game to various continents, even though there was the Marlyborne Cricket Club since 1787. Many Indians participated both at the local, as well as in international tournaments. Indian cricket got a fillip in the 1890s when the Prince of the state of Nawanagar wowed every body in England who thronged to watch him bat. In 1907, triangular matches were played with religious communities participating, and in 1912, quadrangular matches became common with Muslims joining in. 1911 was another important year when an all Indian cricket team toured England. In 1931, with the efforts of Mr. Govan and De Mello, the then provincial Boards of Cricket Control were dissolved to form the Board of Cricket Control of India which became the first all India association for supporting and fostering the game, as well organizing international participation in the game. 1932 was the year when India became an official cricket playing nation. From 1932 to 1952, the game underwent trying times internationally. The game got a setback in 1945-46 when it was banned because of communal overtones. The struggle for independence did not dampen cricket, but the game was in the background, to resurface after independence. Post independence, cricket was played among states and competition grew with Indian cricket clubs being established. The game had by then spread across the subcontinent.

Independence made a difference in every sector, including cricket. Colleges and universities encouraged the game, and even children started playing it on street corners. A major landmark in the history of Indian cricket was when India won the fifth and final test of the 1951-52 series against England at Chennai by an innings and eight runs. A year later, Indian cricketers registered their first-ever series win against compatriots-turned-foreigners, Pakistan. India won its first Test series abroad in 1967-68, when the New Zealanders were beaten 3-1 on their own pitches. Three seasons later, the Indian team went several steps further, winning back-to-back series in the West Indies and England. The country's unexpected triumph in the World Cup in 1983 emboldened Indians as they grew to become international cricketers in their own right.

FORMATION OF IPL

Test matches, Ranjit trophy and ODIs were not able to quench the thirst of Indians, and many felt the need for supporting and improving the cricketing fraternity in India. There were criticisms about the functioning and selections and organizational capabilities of BCCI as well. Added to this, the criminalization of the game by mafia dealings and doping, a renewal strategy had to be sought to sustain the game. The game had seen growth and reached a maturity stage, and before it could decline, an innovative idea had to be thought of. At the same time, Mr. Kapil Dev, the legendary cricket captain, who led India to its first and so far the only World Cup victory, initiated the formation of ICL with the intention of fostering the game as he fell out with the BCCI. But the adventure could not take off because of poor sponsorship. This was the most opportune time for BCCI to salvage its image and the idea of converting the five day game into a league game of three hours of the 20-20 format came up as a re-launch strategy. This can be considered as an achievement, as the game was never played in India for three hours, although it had become a league game of Twenty20 in many countries, whereas football and soccer were already 90 minute games, and there was no major transformation in the format to make them into league games. So, from a five day extravaganza of a test match to a 50-50 ODI, the game became a three hour drama with IPL in 2007. The innovative idea was named as the Indian Premier League.

The initial step was the decision about the 'title sponsor.' Apart from DLF, major players participated in the bid process. The list included World Sports Group (WSG) who bid on behalf of Hero Honda Motors (India) Ltd, Percept D'Mark and 21st Century Media. The successful bidding process started a plethora of activities on the cricketing front. In 2008, eight teams were formed and were bid by corporate and film personalities, and their inclusion made cricket a different ball game altogether. One of the biggest benefits IPL brought was that, it creates a stable form of competition; we can even say that the reason for inventing leagues was to bring stability in competition. ICC tournaments are knock-out tournaments. In the case of knock-out tournaments, it is all a matter of luck, the team that attracts more fans will survive the competition. Sometimes, the semi final and final games may be between teams that nobody is really interested in. In a local area, once a favorite team is out, the audience is also lost. But in the case of group games like IPL, everybody has to play everybody in an eight cornered contest. Points are added and winners are declared. There is no sudden death and this is what a broadcaster needs to showcase which was not the case with the World Cup.

INVESTMENT IN THE GAME

In 2008, the game had added two million as the return on investment for the sponsor BCCI. Four parties invest in the game 1) Franchisees, 2) Sponsors, 3) Advertisers, and 4) General Public. Each of the parties works on a different platform but have the same target, the consumer and his purse.

The Franchisee

Franchisees are the most important parties in the main game of IPL. Their strategic initiative makes or mars the game, and it is their success and profitability that will see the future of IPL, the much applauded effort of BCCI. Doubts have lingered in the minds of people after the initial euphoria, whether the franchisees will make a profit, or at least break even, as the initial investment in the auction seemed over ambitious. We have shown in Table 1, the initial investment of this group, its revenues and expenses for the two year period during which the business has been going on and the margins.

Only two teams made profits in the first year with a maximum of Rs.8 crores, and the remaining teams made losses with a maximum of Rs. 45 crores. Overall loss of all franchisees was Rs. 89.4 crores. But BCCI made a profit of Rs. 350 crores from IPL 2008 alone, whereas its profit for the entire 2007 season for BCCI was Rs.235crores. After the first season of IPL, brands riding on high-profile owners of teams like Kolkata Knight Riders and Royal Challengers seem to have benefited the most, compared to the team that won the game. But for the next season, the game moved to an African nation after security concerns were raised because of it was coinciding with India's general elections. IPL challenged the media rights deal in the Bombay High Court, having sold it for ten years at a cost of US $1.026 billion, with the consortium expected to pay BCCI US $918 million for the television broadcast rights and US $108 million for the promotion of the tournament. The out-ofcourt settlement between IPL and SET Max (Sony Entertainment Television) led to the signing a new contract with BCCI, for paying a staggering Rs.8,700crores for 10 years. BCCI claimed that the huge amount was required for subsidizing IPL's move to South Africa which will be substantially more than the previous IPL, as it had agreed to subsidize the difference in operating costs between India and South Africa. When IPL shifted to South Africa, it did not make losses, but the event sponsors and the advertisers had a gala time with every team making a profit and BCCI a windfall.

REVENUES

Where does the revenue of the franchisee come from? In the initial years, teams have grossed money through shirt sponsorship, local sponsorship, licensing program; uniform merchandising, hospitality and premium seating, match-day concessions, match-day promotions and team media platforms. These are deals that individual teams have to tie together, and BCCI has no role, or share in them. But the sharing arrangement/model between the BCCI and the franchisees appears interesting. The initial formula will be slowly changed, based on future prospects, as it is expected that when IPL becomes a joint stock company, which it may, the franchisees will stand to gain more. The number of teams are also likely to increase to ten after five years. Refer Table-2

After snapping up players for record prices at the auction, teams started efforts for increasing their revenue and profitability through team sponsorships. Maximum revenue earnings was from title sponsorship. The chief among them are Dubai-based Emirates who is the main sponsor of the Kings XI Punjab IPL team. Bajaj Allianz Life Insurance Company announced its association with the Rajasthan Royals. Chennai Super Kings sewed up its sponsorship and merchandising deals with brands such as PepsiCo, Wrigleys, Cafe Coffee Day, Johnson & Johnson and Camlin.

Quite a few teams thought out their strategies, such as Kolkatta Knight Riders, and went tech savvy, Chennai Super Kings concentrated on ground level competition with high-profile players in its team and were the runners-up in the inaugural edition, Mumbai Indians roped in Hrithik Roshan as the brand ambassador, Royal Challengers based their strategy on high profile advertising, and some teams worked out promotional songs, cheerleading babes and Bollywood actors. Despite the economic slowdown, interest in cricket, or TV, did not decrease as the teams changed their marketing strategy by planning more activities for its fan base, rather than with star ambassadors.

EXPENDITURE

The expenses incurred by the franchisee teams are ground rent, players pay, events for promotion of the team, star ambassadors, cheer leaders etc. In addition, players can be purchased by teams from each other at a premium, provided the teams so want, but the IPL has announced a cap of US$ 5 million on any such trade. That would unambiguously signify graduation or demotion, depending on player performance and individual skills changing cricket from a traditional sport to a tool of mass entertainment.

THE SPONSORS

Sponsorship is the next factor to be reckoned in the success of the IPL. The botched attempt of Kapil Dev with ICL is a case in point. There are two level sponsorships, and most of them are for durations between five to ten years. Sponsors of IPL and the respective deal amounts are:

1. DLF is the title sponsor for US$ 50 million dollars

2. Sony Max is the official media partner and broadcaster for US$ 1.026 billion.

3. Kingfisher is the official airline sponsor and umpire sponsor for US$ 25 million

4. ITC group of hotels is the official supplier for an undisclosed amount.

5. Pepsico is the official pouring partner for US$ 12.5 million.

6. Citibank is the official banking partner for an undisclosed amount.

7. Hero Honda is the official partner for US$ 22.5 million.

8. Vodafone is the official telecom partner for US$ 25 million.

9. Reebok apparel sponsor for Jaipur Rajasthan Royals.

10. Spice wins title sponsorship for the Mohali team

11. Coca Cola, Max New York, Hyundai and Godrej co-sponsors at Rs 18-25 crore.

At the second level, ground sponsorship was between Rs.3-3.75crore each, and associate sponsors fetched anywhere between 20-25lakhs. Zee Sports President Satish Menon said before the IPL began last year, that "The prevalent asking rates of Rs.30, 000- 40,000 for 10-second the airtime slots will be there". For the telecast rights and the terms of the deal, refer to Table 3.

For IPL, the biggies shelled out Rs.20crore upwards for total advertising time of 150- 200 seconds per match. In 2008, advertising rates for the IPL Twenty 20 tournament were soaring in the initial stages itself. SET Max, IPL's official TV channel had completed 75 percent of its slot for rates that were prevalent during the last World Cup.

INTERESTING RULES OF THE GAME

Two major areas were covered while framing the rules of the game.

Rules for player selection: BCCI formed IPL with an entertainment/business motive, developed rules for a fair game between teams to bring discipline among teams and promote Indian players and Indian cricket.

* Teams had to bid in the auction and find their players, enter into a contract for five years from a list prepared by IPL of both young and old, Indian and foreigners.

* Teams were expected to have a mix of age and nationality with a minimum of four 'under 22-year old' players.

* IPL suggested a set of iconic players who would not be auctioned, but would be attached to teams based on the city, or province, from where they hail, and the payment would be 15 percent more than the highest bid amount of the team. This idea was accepted and IPL selected Sachin Tendulkar, Sourav Ganguly, Rahul Dravid, MS Dhoni and Yuvraj Singh as iconic players.

* Each team would include at least four players from the catchment area decided, based on players registration with the local cricket association.

* IPL teams would have a squad of a minimum 16 players for the tournament with not more than four foreign players in the final XI of a match.

* Each of the participating teams could include a maximum of eight foreign players in its squad.

* No Objection Certificate (NOC) from the cricket board of the country of the player was required to enable participation in the Indian Premier League.

Curiously, although players from all over the world participated, there was no English player in the first edition of IPL. Teams were restricted from spending more than US$ 5 million for buying players in 2008. Cricket Australia's barring more than two of its players from appearing in the same team also added a competitive flavor to IPL.

Rules for the games: In the group stage, each of the eight participating teams would play against each other twice. The four teams with the highest points after the group stage would progress to the semi final of the Indian Premier League (IPL) 2008. The winners of the semi final round would face each other in the tournament. The semi final and final match of the tournament would take place at the venue fixed by IPL. The venues were Brabourne Stadium, Mumbai for 2008 and Johannesburg for 2009.

The cash-rich Indian Premier League has promised to utilize revenues from the Twenty 20 tournament to boost the cricket infrastructure in India, with an eye on the 2011 World Cup of cricket. Owing to its recognition by the International Cricket Council (ICC), it will enjoy a better status and international reach. With this, Indian cricket reached the international arena with the other existing T20 tournaments across the globe. Other famous international names are England - Twenty20 Cup; India - Indian Cricket League; Pakistan - Pakistan Super League; South Africa - Standard Bank Pro 20 Series; Sri Lanka - Inter- Provincial Twenty20; Australia - KFC Twenty20 Big Bash; New Zealand - State Twenty20; West Indies - Stanford 20/20 Zimbabwe - Metropolitan Bank Twenty20 ;Kenya - National Elite League Twenty20 Canada - Scotiabank National T20 Championship.

RETURN ON INVESTMENTS/BRAND DEVELOPMENT

IPL has not only created returns for owners, but also developed a brand image for the franchisees, players, IPL, and the sponsors and advertisers who bet their money on the game. The Indian Premier League is really a television league, as it's not only about fans in the stadium, but also about TV fans. It follows exactly the principle of a soap opera. For instance, the Shane Warne-Sourav Ganguly row, the cricket mafia connection, death of Pakistan coach Bob Woolmer, attack on Sri Lankan players in Pakistan, all attracted attention the world over. There is action, drama and emotion. The only difference, it is an unscripted soap opera. With this, the game has become parallel to religion in India. It has brought the two giants of Bollywood and cricket together, for a lot of enthusiasm, money, publicity and reach of the game, not only within its borders, but also in 100 countries where it is watched, raking millions for everyone involved in it. Brand Finance had valued the IPL brand at US$ 2 billion. Table 4 gives details of brand equity of the various teams. The study was based on various revenue lines such as broadcasting, IPL sponsorship, team sponsorship, merchandising and gate receipts, the effect of performance, the catchment population of the city, the capacity of the stadium and the presence of iconic players. Mr Gaurav Seth, Business Head, VGC Sports, "The sponsors and advertisers won and lost some on a caseto- case basis. It was not that every brand riding on the IPL was a winner. Even brands riding on the losing teams, but with owners who had a larger-than-life image did well. Teams with low budgets and glamour, like Rajasthan Royals, got mileage for it sponsors purely on their performance on the field."

As players from all over the world were auctioned, viewership was high and broadcast rights had higher value. According to Mumbai-based TAM Media Research Pvt. Ltd, a television audience measurement agency, the average TV viewership rating (TVR) on 10 May 2008, for IPL was 4.72 percent, sharply off the average 5.2 percent ratings achieved during the first two weeks of the much-hyped cricket tournament. Audience Measurement and Analytics Pvt. Ltd, or aMap, an audience measurement firm that provides overnight viewership data, reported drop in TVR average to 3.1 percent on 8 May'08 and a 13 May'08 but a match between Kolkata Knight Riders and Delhi Daredevils, the two high-profile teams in the league garnered a 4 percent viewership. The overnight ratings by aMap on the night of the finals reached a peak of 10.2 with an average of 7.7. This rating was higher than the semi final ratings (at 4.5) or even the opening match ratings (4.2).

The Twenty20 cricket tournament after two seasons has been a television hit. According to MindShare Insights, the research arm of media buying agency MindShare, in its first 15 days of the 2009 tournament, around 131 million people watched the tournament on TV across the country, the highest reach managed by any Indian television show. MindShare based its study on data provided by TAM (Mehra, 2008). Of the seven current on-air sponsors on SET, which include presenting sponsors Vodafone Essar Plc. and Hyundai Motor India Ltd, and associate sponsors Havells India Ltd, Max New York Life Insurance Co. Ltd, Coca-Cola India, Godrej Appliances Ltd and Citibank India, four have already approached for "association" for 2010. Some new advertisers, such as ITC Ltd, Future Group, and satellite TV services provider Tata Sky Ltd, are also in the race for 2010 sponsorships. To quote Kishore Biyani, chief executive of the Future Group "We are currently running a new Big Bazaar campaign on IPL, and since the response is good, we are considering sponsorship for the next season".

IPL 2010 - THE THIRD SEASON

Rajasthan Royals won IPL 2008, the trophy of IPL 2009 was lifted by Deccan Chargers. IPL has such a mass following that only in couple of months after the conclusion of the second season, fans are counting the days for the third IPL of 2010. The dates for the third edition of the Indian Premier League have been announced by the IPL Working Committee along with four new venues which will host a few of the games. The tournament will be a 60-match series which will begin from the 12th March and will continue till 25th April, 2010.

There was also an announcement made for the fourth season of the IPL to be played in 2011. The number of teams for the fourth season will be increased by two to total ten, and the auction for the same will happen in January 2010 itself, to allow the new teams to gel together. Salman Khan, Ajay Devgan and Sanjay Dutt - have evinced interest, and want to bid for the two new teams that will feature in the 2011 season. The ten teams will play each other twice, making it a 90 league games, to be followed by two semi-finals, a game for the third place and then the finals; a whopping total of 94 games!

CONCLUSION

"It came, we saw and hearts were conquered". From the viewpoint of what the game was and what it is now, it appears that there is a 90O turn. Indian Premier League has completely swept the cricketing world in only 18 months. The main reason for its importance and success was entertainment. A T20 match hardly takes more than 3 hours to finish. In this fast paced world, people don't want to wait for five days, or even a single day, for the result of a cricket match. IPL used these facts and made cricket and IPL a household name. As promoted with the tagline 'Manoranjan ka Baap' (father of entertainment), IPL delivered everything that it promised. IPL 2008 and IPL 2009 have been huge hits not only in India, but also outside.

The lives of players have also undergone tremendous changes, as they are responsible for each and every ball of the game, as their future is dependent on their performance on the field. The cricketing society is looking at this development with caution as the game has changed the rules dramatically. The other question in the minds of all is will IPL withstand for long? The initial euphoria of 2008, followed by change of venue and increased cost of broadcast rights, the plan of increasing the number of teams to ten and incorporation of IPL as a company in an international model, all of this appears as if BCCI is very much in a hurry!!. Time will only answer the question "What is the future of IPL?"

To quote Donald Bradman, "If there is a threat to the game of cricket, the threat lies in the first class arena. One day cricket especially day-night cricket is here to stay" Bradman must be laughing in heaven thanking his fate for being born exactly a century before someone thought of IPL and instant, "pyjama cricket". It is impossible to imagine the great Don being auctioned off between a Chennai Super Kings and Kolkata Knight Riders, as if a price could be put on his immortal skills.

The study raises several issues of ethics and strategies adopted. The prominent of these needing discussion include:

1. What are the strategies of the various parties involved in the IPL drama?

2. Do you find advertising in IPL TV shows can be a global strategy for an MNC?

3. Will the strategy of IPL bring laurels to BCCI?

4. What are the strategies of BCCI in hosting this game in a different format? Will this strategy be successful, or good for the game?

5. Do you think that there is a potential for all other games like Indian football, tennis, hockey to adopt this strategy to get national and international fame and presence?

6. Is it fair to use players as a 'good', or product, that can be bought and sold in an auction?

Subject: Cricket; Sports franchises; Corporate sponsorship; Tournaments & championships

Location: India

Classification: 7200: Advertising; 8307: Arts, entertainment & recreation; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 234-245

Number of pages: 12

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600023

Document URL: http://search.proquest.com/docview/745600023?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 43 of 100

SECTION 5. BUSINESS- LEVEL STRATEGIES: FOCUS ON MARKETING - Chapter 24. From Subhiksha (Prosper) to Iksha (Perspire): The Topsy-Turvy Story of Indian Retail Business Model

Author: Jha 'Bidyarthi', H M; Srivastava, Ashish K; Dande, Mayur A

ProQuest document link

Abstract:

The Indian retail market is estimated to be worth at US $350 billion and organized retail accounts for 6 percent of the total market. So all the Biyani's, Ambani's and the Birla's are presently sharing the 6 percent pie. With such a huge opportunity, anybody would like to enter the Indian retail market. Both domestic and foreign retail players are interested in investing in the Indian retail story. The results have however been, mixed so far, but there are encouraging signs. Mr. R. Subramanian, an IITian and an IIM-A alumni set up one of the largest Indian retail chains named Subhiksha Trading Services Pvt. Ltd. in 1997 based on an Indian business model that opened 1600 outlets over 10 years, across the country, and proved to be a great hit for others to follow suit. Suddenly, it found itself cash strapped, heading for closure of its outlets and perspiring for obtaining funds to revival. Debt financers have raised their eyebrows against Mr. Subramanian and a debt restructuring plan is being prepared for the revival it. It teaches many lessons for the Indian organized retail sector. [PUBLICATION ABSTRACT]

Full text:

THE PROMOTER

Not many IITians and IIM alumni think in the same way as Mr. R. Subramanian, Subhiksha's Managing Director. He thinks, "Going to the US never fascinated me. I preferred doing something in front of my own people rather than going to a foreign land because this gives you more satisfaction and recognition. And the sense of achievement is far greater thandoing the same thing in a far-off land." He further opines, "India is your country and you will get as much opportunity as anybody else. If you don't do well here, you have only yourself to blame."

Initially, Subramanian got interested in the investment bank department of Citi Corp, and he was one among the three who were recruited by Citi Corp from IIM-A. After working there for 3-4 weeks, he realized that that was not where he wanted to work. He felt as if he was cut off from the world, and living in a world of trading. He felt he was doing the same work and earning more and more money. That was not what he wanted to do in life. He resigned from Citibank and came down to Chennai to join Enfield which had made him an offer when he was a student of IIM-A. It was a manufacturing company which had an range of jobs. Mr. Subramanian was with Enfield for two years from 1989-91.

ENTREPRENEURIAL ENDEAVOUR

The thought of doing something on his own came to Mr. Subramanian's mind in 1989 itself. But there were no VCs (venture capitalists) to fund his ideas in those days. There was no precedent in his family, for him to dream of becoming an entrepreneur. His father used to work for the Reserve Bank of India and his brothers also were in government service. His cousins, after studying at various IITs, went abroad.

One day Mr. Subramanian talked to Mr. Viswanathan of Enfield who had got him into Enfield, "I wanted to start a company of my own." Mr. Viswanathan asked him from where was he going to get the money? Mr. Subramanian had no idea. Mr. Subramanian told Mr. Viswanathan that he would figure out some way. Mr. Viswanathan then told Mr. Subramanian that he would give him money to set up the company and Mr. Subramanian would run it for Mr. Viswanathan. As long as he could run the company, it was fine with Mr. Viswanathan.

VISWAPRIYA -THE ASSET SECURITIZATION FIRM

Mr. Viswanathan provided Mr. Subramanian with the money as promised with which Mr. Subramanian set up his first company called 'Viswapriya' in 1991. Mr. Subramanian got a galaxy of very good people on board. He basically did three things. He bought debentures from thousands of people who had them in very small numbers, he then consolidated them as 0.1 million (100000) or 0.2 million (200000) debentures and, finally invested in mutual funds. The investors got a monthly income. Every time the money went to millions of investors, it went from Viswapriya and that way the company's name became popular. It was a good business to start and Viswapriya was a pioneer.

The big breakthrough nationally came in 1994 when Viswapriya started new product IPO financing, which it called as Prime Advancing. The company created the first loan anywhere in the world for some one who applied for shares without collateral, and without guarantee. This industry and Viswapriya, both, boomed. Customers were making tons of money, and Viswapriya was also making tons of money. So it was a win-win situation for everybody. In 1994-95, Viswapriya lent US $ 40 million. In 1995-96, it lent US $ 240 million. The net profit of the company zoomed to around US $ 5 million. Of course, competition soon came.

THE TWIST

The stock market collapsed in 1996. This compelled Mr. Subramanian in 1997 to switch over from asset securitization to some other business. He made a study of two areas: software and retail. Between software and retail, he thought it was a bit late for software as Satyam, Infosys, Wipro, TCS, etc were already established by then. He did not want to be a small player and late entrant. In retail, he would be one of the early entrants, so he would have the learning curve very much to his advantage.

SUBHIKSHA - THE LARGEST INDIAN RETAIL CHAIN

Mr. Subramanian allocated a US $ 1 million corpus and entered the retail business. There were a lot of thought processes behind this move. He wanted to attract not the top end customer, but the aam aadmi. From his research of three months, he found that consumers prefer buying groceries closer to home. So, he decided to set up 1000 sq ft shops all across the city and not a 10000 sq ft big store at one location in Chennai. He decided to sell branded products at a lower price. He looked at all sorts of names; finally he chose the Sanskrit word Subhiksha (prosperity), because it reflects the Indian ethos and is a word that can be understood all over India. What he was trying to do was different from the western model. There was truly an Indian retail business model in place. The theme was, why pay more when you can get it for less at Subhiksha?

In March, 1997, discount retailer Subhiksha Trading Services Ltd, opened its first store in Thiruvanmiyoor in Chennai with an investment of around US $ 8 - 10,000 that expanded to 1600 outlets selling groceries, fruits, vegetables, medicines and mobile phones by the year 2008, with a turnover of US $ 451 million in that financial year. It had plans to increase the number of outlets to 2200 stores across the country with an additional investment of US $200 million by end 2009. Subhiksha now has pan Indian presence with stores across Delhi, Uttar Pradesh, Punjab, Haryana, Gujarat, Maharashtra, Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. Today, it is a multi-locational, professionally managed and vibrant organization. The retail chain has seen considerable growth by offering goods at cheaper rates, thereby increasing its customer base. It is also dubbed as India's largest retail chain. Its vision to deliver consistently better value to Indian consumers, has guided Subhiksha to deliver savings to all consumers on each and every item that they need in their daily lives, 365 days a year, without any compromise on the quality of goods purchased.

According to the profit and loss account of the company for fiscal year ended 31 March, 2007, its income and net profits were US $140 million and US $4 million, respectively, against US $60 million and US $2 million respectively, in the preceding financial year.

FINANCIAL CRISIS

As of January 2009, Subhiksha has been facing a severe financial crises pertaining to liquidity. This has led to the shutting down of a large number of stores across the nation. Today, the company is on the threshold of closure - it has no money to run its operations, its senior staff are deserting, many of its stores have reportedly been looted, and the government may initiate an independent audit of its accounts at the instance of ICICI Ventures, the second-largest shareholder with 23 per cent stake.

Analysts, however, agree that Subhiksha's low-cost model was sound. They blame the company's troubles on its rapid expansion with debt capital to open 800 stores in a year. Although the store sales were as high as US $ 250 per sq. ft during the first few months of 2008, the debt taken for a number of new stores and the financial crisis put paid to Subhiksha's exuberance. The industry average for stores of 2000 sq. ft (Subhiksha's typical store size) to break even is US $ 100 per sq. ft, and analysts say that Subhiksha's new stores never achieved break-even levels.

On 10th March, 2009 the regional office of the Employees Provident Fund Organization decided to attach the bank accounts of the struggling Subhiksha Trading Services for failing to deposit PF dues even after the expiry of the deadline for doing so. Mr. R Subramanian will need to pay US $ 3.25 million immediately towards provident fund dues. There are reports that the Employee Provident Fund Office (EPFO) in Chennai would attach the properties of Subramanian for collection of dues and that the PF commissioner has begun a 7-A enquiry for determining the EPF dues of Subhiksha. It is further learnt that the company is unable to pay salaries and arrears to its 15,000 employees ever since October 2008.

THE REVIVAL PLAN

Mr. R. Subramanian has, however, not given up. Firm in the belief that Subhiksha can still be a viable business, he is making a last-ditch effort to survive by pitching for a US $60 million loan from a consortium of 13 banks, besides attempting a debt restructuring exercise. In a letter sent to Business Week, Subramanian says, "The infusion of US $60 million would revive Subhiksha soon." That would allow him to pay off the vendors and resume operations at a minimal level, though he might also have to shell out a significant chunk of his 59 per cent stake. Subramanian's confidence stems from the belief that his business model is viable. "We did not raise enough equity, and we paid the price," he says. "It was a capital structure problem rather than a business model problem."

The Corporate Debt Restructuring Cell, a voluntary organisation backed by the RBI assisting lenders and borrowers, began working on Subhiksha's debt from February. CDR involves a viability analysis, followed by the restructuring of existing loans and infusion of fresh loans. Officials said it was the first CDR in the service segment, and given the large number of banks and the amount involved, it would set a standard for restructurings in the service industry.

Twelve of the 13 lender banks along with three major shareholders of Subhiksha are working on the US $160 million debt restructuring programme and ways to infuse funds into the company to revive operations. The contours of the revival plan have been agreed. Only Kotak Mahindra Bank - which is one of the smallest lenders - chose to go legal. The remaining 12 banks, including the six which are part of a corporate debt restructuring (CDR) process, and six others that are not part of CDR, have been working together on the revival package. The deadline for the closure of CDR is July 31, 2009, and the company is confident that the process will be completed well before that date.

Analysts feel that the US $60 million restructuring may help Subhiksha revive, but only if it closes at least 40 per cent of its stores. That may keep it afloat, but would be disastrous for a company that fundamentally offers low prices and relies heavily on high volumes for better discounts from consumer companies.

THE ISSUES

Approximately 10-years of operation of Viswapriya by Mr. R. Subramanian saw it end up in closure, however, without any disaster. Another 10-year of operations of his second venture i.e. Subhiksha is also heading for closure with many controversies surrounding it. Both the ventures were pioneering in their respective industries. Both set the trend for many more to join. Both were great successes. Even though backed by class education from IIT and IIM, high philosophy of serving own people and Indian ethos, Subramanian's Subhiksha (proper) has become Iksha (perspire) today, with analysts wondering what went wrong and where. Is it a case of strategic failure, or of financial bungling, or of mixed signals from the Indian organized retail or ...?

Subject: Case studies; Debt restructuring; Supermarkets; Shutdowns

Location: India

Company / organization: Name: Subhiksha Trading Services Ltd; NAICS: 445110

Classification: 8390: Retailing industry; 3100: Capital & debt management; 9110: Company specific; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 249-253

Number of pages: 5

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600089

Document URL: http://search.proquest.com/docview/745600089?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 44 of 100

SECTION 5. BUSINESS- LEVEL STRATEGIES: FOCUS ON MARKETING - Chapter 25. Bollywood Distribution System: A Case of No-Show

Author: Rishi, Bikramjit

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Abstract:

Bollywood is the informal term popularly used for the Mumbai-based Hindi-language film industry in India. Over the years, there have been many advances in Bollywood on all fronts, including the technology used, themes of movies, finance, exhibition and marketing. The movie making business in India received strong impetus from the growth of the multiplex culture. The author discusses the growth and corporatization of an industry which is seen as a potpourri of glamour, excitement and mafia connections. While applied theories of marketing are changing the landscape of modern film distribution, at the same time, increasing corporatisation and integration of distribution channels are throwing up new players in a field dominated by family run businesses by expanding its aura across the globe. [PUBLICATION ABSTRACT]

Full text:

BACKGROUND

Bollywood is the term popularly used for the Mumbai-based Hindi-language film industry in India. Literature also indicates that Bollywood is often referred as Indian cinema as a whole at the international level, but it is only a part of the Indian film industry, though a dominant one. Over the years, there have been many advances in Bollywood on all fronts including the technology used, themes of movies, finance, exhibition and marketing. The movie making business received strong impetus from the growth of the multiplex culture. Bollywood turnover is estimated to be more than US $3 billion. Indian cinema has adapted itself which is in keeping with contemporary film making. Changes can be attributed largely to modern applications of film distribution which have had as much of an impact on the final consumer as Alam Ara (1931) had on the film makers mindset and colour prints changed cinema viewing in India in the late 1960s.

The Indian film industry is getting corporatized and is seeking opportunities for overseas co-production. Bollywood is a major contributor in the number of films produced in India. The other two centers which produce a large number of regional language films are Chennai and Hyderabad. In 2007, the Indian film industry produced 1132 films and theater admissions stood at 3290 million. The average ticket price at US $0.5 per person is the lowest across the world (USA = US $7.2, Japan = US $11.7, China = US $2.2, France = US $8.8, Germany = US $9.0, Spain = US $ 8.4, Italy = US $8.5, Republic of Korea= US $5.9, UK = US $ 9.5).

Currently, Bollywood films are multi-million dollar productions, with costing up to US $10 million. More ambitious projects are reportedly being planned, the most expensive of which is an epic film Mahabharata,1 by Ravi Chopra,2 estimated to cost up to US $30 million which started rolling in 2008. Since the industry is growing fast production of many films the requirement of sets, costumes, special effects, and cinematography is increasing day by day. The major reason for the high growth rate of the industry is because it is getting corporatized, with public issues of several film production houses, increasing number of distribution and exhibition companies, long term contracts between film production companies and directors/actors and the fact that more than half of the releases in 2006 were by corporate houses rather than individual banners.

A producer needs to choose his distributors with great care. Movie distribution is a business fraught with risks unheard of in most other businesses. Financial success in this business is not merely determined by the quality of the finished product, (the movie), but also by other factors like tastes of the audience and the season for a release of a movie. All these factors are very subjective, making movie distribution a business where the ability to absorb big losses is of utmost importance. Some of the common factors which producers consider while choosing distributor(s) are given in Table 1.

As the movie is getting completed, the producer carefully scrutinizes distributors before making a selection. A distributor also selects a particular movie and its producer after considering factors listed in Table 2.

SITUATION

When a movie is declared a hit or a flop, it is the distributor of the movie who gains or loses. The producer of the movie, very often is not entitled to any profits earned by a distributor. Hence, unlike other industries where companies share in losses or take a hit with the distributor or retailer, it is the distributor who has to take the loss himself. In Bollywood, traditional distribution channels consists of the producer who sells the movie, the distributor who acquires rights for the movie and the exhibitor who showcases the movie. The following are the types of distribution channels used in the Indian film industry. One Level Distribution Network - Is where either the producer acts like the eventual exhibitor (Taare Zameen Par3) or the producer uses an agent to sidestep distributors in an attempt to reach audiences (Columbia Pictures and Yash Raj Films).4

Two Level Distribution Network - In this scenario, the producer uses the distributor as the medium to reach audiences. This is the most common form and is a two-step process, where the rights are first sold to the distributor who further negotiates with hall owners.

Three Level Distribution Network - Similar to the two level distribution network, but involves another step where distribution is connected to a chain of sub-distributors who contact exhibitors. A recent example was Ram Gopal Varma's5 Aag.6

India presently has about 13,000 theatres with weekly customers of about 100 million people or 5000 + million people per year. Distributors are the last link in the movie chain which brings films to the people. Since a single distributor cannot exhibit a movie in a huge country like India, there are geographical classifications for movie distribution in India. Classifications came into existence before independence, and they continue till date; but many territories have been subdivided.

Different territories are headed by a number of distributors. Mumbai territory has 430 registered distributors, but only 15 among them are active distributors. These distributors generally have associations with friendly distributors which helps in an effective way. While a territory has many registered small time players, the number of distributors who control a majority of the business in the country are less than 30. Distributors usually bid for the rights to a film for a particular territory. India is divided into 10 distribution territories, many of which are further divided into sub-territories. Delhi is part of the Delhi-U.P. distribution territory. According to people in the distribution trade, at one time Mumbai, Delhi-U.P. and the Eastern Circuit (West Bengal, Bihar, Assam, and Orissa) were the three major circuits, the others being much smaller. In recent times, Mumbai is the only major circuit. It will be important to track the processes by which this transformation occurred. As a result of this change, a film's ratio is now measured as the price for which it is sold by producers to a distributor for the Mumbai circuit. Though Mumbai and Delhi have always been the most lucrative, overseas markets are now fetching formidable sums. These territories are bought at different prices. The price of any territory is fixed as a percentage of the price of the Mumbai territory. Therefore, if Mumbai is 100 percent, Delhi-U.P. (considered the next in importance) is 80-85 percent. Interestingly, for an action film, Delhi-U.P. is also 100 percent or, in other words, it is a major circuit for an action film. For an average film if the Mumbai territory rights are sold for US$ 1 million, then Delhi region will generate US $850,000. Chances are that the global territory will also fetch US $2 million. This is clearly a case, where the demographics of a particular area and the sociology of its population quite directly impacts trade practices.

As an alternative to the process of bidding for a film, two arrangements are possible. A producer has a fixed arrangement with a distributor for a particular territory and doesn't place the film for bids. Another, although very rare alternative, is that film producers have their own distribution companies. At present, three producers have their own outlets in various territories: Rajshri Pictures7 (a company owned by the Barjatya family which made Hum Aapke Hain Kaun8), Mukta Shakti Combines9 (Subhash Ghai)10 and Yashraj Films11 (Yash Chopra).12

It is important to stress the shifting nature of this framework, which implies that the structure of any framework with which we can describe the film trade is always fragile, and subject to change. Further, on the basis of various perceptions which are discussed here, some broad generalizations can be drawn. However, one should not assume a transparent, one-to-one co-relation between these categories and the actual existing trade practices. A number of factors such as personal contacts, kinship networks, availability of prints, unavailability of a movie hall due to previous bookings, the assumed success rate of a movie hall, trends in the distribution trade, changes in technology, the 'threat' from cable-operators, rates of entertainment tax and various other factors invariably intervene in the linkages between distributors and exhibitors.

AGENDA

One of the most contentious issues while choosing a particular distribution channel and where and whom to give distribution rights for a movie is the issue of revenue sharing. There are a number of instances where the release of a movie has been postponed on account of non-resolution of these issues, or the movie was not released in some select multiplexes because of conflict between the concerned parties. The revenue sharing models are used between the producer and distributor, as well as between the distributor and the exhibitor. Revenue sharing models are decided on various factors like the genre of movie, the place and the movie hall where the movie is being screened, the hype preceding the movie and past track records of the players concerned. There are basically three main revenue sharing models in Bollywood.

Minimum guarantee: In this model, the distributor pays the producer a guaranteed amount before the movie is released. The amount paid does not take into consideration the revenue which the movie will generate and is non-refundable. If the movie generates revenue less than the guarantee amount paid, it would be a loss for the distributor only. If the revenues are more than the guarantee amount, the same would be shared between the producer and the distributor as per already agreed terms and conditions. The usual terms are a percentage of weekly earnings. It is usually around 45 percent for the first week, 40 percent for the second week and 35 percent for the third week. This model is mostly in vogue. Most of the revenue nowadays is generated in the initial weeks. There are a number of factors which determine whether a movie is a hit or flop. This model is generally used by single screen exhibitors, because this is the preferred model of the producers and distributors, as it provides them with a safety net since single screen owners are not in a position to extract big bargains. Producers like to use this model in small towns as they do not expect much revenue from such places.

Advance commission: In this model the distributor or the exhibitor pays some commission beforehand to the producer or the distributor. The commission is refundable, and if the distributor is not able to recover his money from the revenues of the movie, then he has the right to ask the producer for refunding his money. The producer would have to give to the distributor the amount which the distributor has lost. The remaining rules and regulations are the same as in the previous model. This model safeguards the distributor and the exhibitor from major losses if a movie fails to click with the movie goers. It is preferred nowadays by multiplex owners and all who have the bargaining power to demand such a model from the distributors, and the distributors from the producers. This type of model is also very widely used in metropolitan cities and in tier-2 cities.

Plain commission: In this model, the distributor or the exhibitor does not pay any initial amount to the producer. This model is based on simple commission basis, and whatever revenue is generated by the movie is divided amongst the various parties from the first day itself. This model was very widely used in the past but is used very rarely nowadays. Earlier, producers trusted what they made and had confidence in their product. Bollywood movies used to run in for long periods. There was no pressure to generate revenues in the first couple of weeks. Therefore, the producers would be content to agreeing to plain commission. Nowadays, this type of revenue sharing model is rarely seen except in cases of single screen theatres which are still carrying on their business as per old practices.

With corporatization taking place there have been some changes in the revenue sharing models, with the distributors becoming exhibitors, and producers becoming distributors and vice versa. Managements have become more professional in the industry and profits, not the good personal relations, have started becoming the driving force in the industry. The big losers are the small distributors who do not have the power, or the money, to dictate terms to exhibitors or producers. They have to accept whatever terms are dished out to them, or have to really fight with the different parties to get terms which are somewhat favorable to them.

THE ISSUES

Fanaa13- Revenue Sharing Agreement between Yash Raj Films and the Multiplex Association: For every movie that is released, a distributor agrees on a certain percentage of revenue to be shared between the producer and the distributor. For every week that a movie exhibited in a movie-hall, there is a rate that depends on the film's banner, star cast and hype. For each week of showing, revenue sharing rates change. The rates are agreed upon at the distribution stage itself. Traditionally for a Yash Raj or other big banner films, the share is never less than 45-50 percent. While, for some movies, this percentage falls from the second week onwards, for certain big players it remains the same for two or even three weeks at a stretch. In the case of Fanaa, a higher revenue share was demanded and that too at the same level for three weeks in a row. This resulted in a disagreement with the multiplexes and hence the decision to boycott the film. Similar revenue sharing disagreements were observed in other cases like Lage Raho Munnabhai.14 Welcome15 and Tare Zameen Par16 released by UTV.17 The movies Welcome and Tare Zameen Par were scheduled for simultaneous releases. While UTV produced Welcome, it had overseas distribution rights for Taare Zameen Par. Hence, there was a conflict of interest. This was resolved ultimately by UTV by selling the distribution rights for Welcome to Studio 18.18

Jab We Met19: Fun Republic20 is an exhibitor with presence in both Mumbai and Delhi regions. When Fun Republic was unable to secure prints of the movie Jab We Met from Studio 18, who had distribution rights in Delhi for exhibition in Delhi, it tried to negotiate with Shree Ashtavinayak Cine Vision Ltd,21 the distributors of this movie for Mumbai. This led to channel conflict in the distribution chain. It is because of such regular conflicts that exhibitors like PVR, which have a pan-Indian presence, are venturing into the distribution business to avoid distribution related hassles. The film industry is now poised at an interesting juncture in its history. It is a fight between the old and the new, passion and reason, conservatism and aggression. Only time will tell who will win.

Kambakkht Ishq22 and Kaminey's23 release got delayed: Film producers went on an indefinite strike from April 3, 2009 as they could not resolve their differences with multiplex owners over revenue sharing. The move has come after multiplex owners did not agree to their terms of 50:50 equality in revenue sharing for every film between distributors and multiplex owners. For the first time, top producers of the film industry like Yash Chopra, UTV and Indian Films came together and took a stand that there would not accept any bullying tactics of multiplexes against them from April 3, 2009 until and unless they agreed on equal revenue sharing.

The rift between multiplex owners and producers went on till June 12, 2009. For film fans of big banners, it was heart-breaking news that two of the upcoming summer's biggest Bollywood releases Kambakkht Ishq and Kaminey were delayed. Akshay Kumar -Kareena Kapoor24 starrer Kambakkht Ishq and Shahid Kapoor-Priyanka Chopra25 starrer Kaminey were due in the last week of May and the first week of June respectively. Releases of both the movies got delayed.

Questions: Recommend a revenue sharing model for the producers, distributors and exhibitors of Bollywood.

Identify the types of conflicts in the distribution chain and suggest solutions for the same?

Subject: Motion picture industry; Distribution channels; Multiplexers

Location: India

Classification: 7400: Distribution; 9130: Experiment/theoretical treatment; 8307: Arts, entertainment & recreation; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 254-261

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600047

Document URL: http://search.proquest.com/docview/745600047?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 45 of 100

SECTION 5. BUSINESS- LEVEL STRATEGIES: FOCUS ON MARKETING - Chapter 26. e-Choupal: Hope or Hype?

Author: Dangi, Neeraj; Singh, Harjit

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Abstract:

Agrarian economy has played a pivotal role in India's overall socio-economic development. The complex nature of rural India can be gauged from its diverse people (culturally and socially) and food production systems spread across different agro-climatic zones. This is compounded further by fact that poverty in rural India is widespread and attempts to link India with the globalised economy have not improved their condition. ITC's 'e-Choupal' initiative is an attempt to significantly enhance the competitiveness of Indian agriculture by empowering Indian farmers through the Internet. e-Choupal claims to create a highly profitable distribution and product design channel for the company besides helping to alleviate rural unemployment, create more transparency for farmers, and improve their productivity and standard of living. ITC agri-business is India's second largest exporter of agricultural products. Initial results in small pockets have shown positive increase in income for farmers, although scalability of its operations will determine its overall success. This case discusses the overall Indian rural environment in which ITC's e-Choupal operates and the challenges it could face in the long term, as it gets more and more areas and farmers under its fold. The pros and cons of ICT (information and communication technologies) medium are also discussed. The case also highlights issues related to e-Choupal which may alter the socio-economic structure in rural India in the long run. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

"India lives in villages." This axiom is as true today as it was 60 years ago. Agriculture has been one of the fundamental foundations of the Indian economy, as it accounts for 23 percent of the gross domestic product (GDP) and feeds a billion people, and employs over 65 percent of the workforce. Despite a steady decline of its share in the GDP, it is still the largest economic sector and plays a significant role in the overall socio-economic development of India.

In reality, the role of agriculture in India has been not just to produce food but to sustain and contribute towards overall socio-economic development in rural societies. Overregulation of agriculture along with promotion of unsustainable high input technologies in tiny, fragmented unproductive landholdings has increased costs, price risks and uncertainty. The agricultural system has traditionally been unfair to farmers. Farmers by law cannot trade directly with consumers and have to route their produce through traders at a local, government-mandated marketplace, called a mandi. Farmers have only a rough idea of price trends and have to acknowledge the price offered to them at auctions on the day they bring their grain to the mandi. As a result, traders are well positioned to exploit both farmers and buyers through practices that sustain system-wide inefficiencies.

BACKGROUND NOTE

Traditional Indian Agriculture: Role in Rural Sustenance and Challenges It Faces

The spectacular story of Indian agriculture is known throughout the world for its multi-functional success in generating employment, livelihood, food, nutritional and ecological security besides its cultural significance in our customs and traditions.

With arable land area of about 168 million hectares, India ranks second only to the US in size of agriculture. India has 52 percent of cultivable land with varied climates and soils affording scope for much diversity in agriculture.

India is characterized by a complex mosaic of distinct agro-ecosystems, differentiated by their climatic, soil, geological, vegetational, and other natural features. It is within this diversity of habitats that an amazing variety of crops and livestock has developed over the millennia of Indian farming.

The Indian region is in fact one of the world's eight centers of crop plant origin. At least 166 crop species and 320 wild relatives of crops have originated here. But it is the genetic diversity within each species which is even more mind-boggling. To give some examples, one species of rice has diversified into at least 50,000 distinct varieties, and one species of mango into over 1,000 varieties ranging from the size of a peanut to a small pumpkin.

India perhaps also has the world's largest diversity of livestock, with some 30 breeds of cattle, 40 of sheep, 20 of goats, and 18 of poultry.

Over generations, Indian farmers have continuously adapted and modified the rich genetic material available to them from nature. The diversity of crops and livestock is the outcome of thousands of years of deliberate selection, planned exposure to a range of natural conditions, field-level cross-breeding, and other manipulations which farmers have tried out. In other words, a single species of rice collected from the wild some time in the distant past, has diversified into 50,000 varieties as a result of the ingenuity and innovative skills of the farming communities.

But why in the first place did Indian farmers do this? One obvious answer is that different crop varieties and livestock breeds were adapted for diverse local conditions of growth and survival that were available in the country. The diversity is spread over both time (seasonal) and space (geographical), both vertical and horizontal layers within the same field, and both within and between species. Adaptation to localized environments has only been one mechanism or reason for diversification.

More than mere physical adaptation, a host of economic, cultural, religious, and survival factors have played a role in this diversification. For instance, Warli tribals of the West Indian state of Maharashtra have grown a great diversity of rice for different water and soil needs, varying maturity periods, resistance to different diseases, and various cultural events. Several varieties of rice and other crops were grown in many parts of India just for use during festivals, marriages, or other auspicious occasions; several others were grown for their taste, colour, or smell; yet others for their pesticidal or soil-fertilization characteristics.

The stability of a bio-diverse agriculture is perhaps its most important characteristic, as recorded from many parts of the world. Many times, the practice involves the sowing of a mixture of crops into a single plot of land to obtain optimal and sustained yields. Since maturity periods of these crops vary, different crops are harvested at different times, helping to retain soil moisture, and providing a constant supply of food. Fertility is continuously recharged by the use of leguminous plants like pulses.

THE CONTOUR AND COSTS OF CHANGE

Agricultural schemes have also attempted to homogenize growing conditions converting an earlier complex mosaic of diverse micro-habitats into now vast stretches of uniform agricultural landscape. Intercropping is replaced by mono-cropping, a wide diversity of species is replaced by a handful of profitable ones, and the great genetic diversity within the same crop species is replaced by a narrow genetic range of financially lucrative varieties.

These features result in an increasing dependence of the farmer on the industrydominated market and government. Virtually everything that is required for farming, except land and labour, is now obtained from outside: seeds, irrigation, fertilizers, pesticides, credit. And despite huge subsidies for these inputs, as also support prices and the like, an increasing number of farmers are facing an economic treadmill, spending more and more to achieve the same output.

Officially, Green Revolution technologies have been credited for improving quantitatively, India's agricultural productivity making it a net exporter of a variety of food grains. The overall gain in increased productivity has not translated into an improvement of the overall rural agrarian economy, especially farmers. The reasons include stress on quantity rather than quality, focus on maximum yield rather than optimum yield, promotion of a few selected crops with a narrow genetic base, instead of a wide genetic band among varied crop varieties (to satisfy food needs). In effect, agriculture has been commoditized to look as like any other industry.

Indeed, the recent thrust towards agro-exports and agro-product processing is likely to intensify this destruction. There is a certain homogenizing logic to global markets, which demands standardized, easy to package and easy to price goods. Incentives are likely to increase for farmers to grow such produce for export, rather than for achieving localized self-sufficiency, at least in food grains. In other words, this enhances the trend towards converting food cropping lands to short-term cash cropping.

CONVENTIONAL POST HARVEST SUPPLY CHAIN

Typically, after harvest, farmers bring their produce to mandis (regional market yards) in small multiple lots throughout the year, where it is auctioned to traders and agents of processing companies in an open outcry method. However, despite the government regulating these market yards, there is lack in transparency in prices and cheating in weighing. Also many intermediaries carry out this whole activity, each one acting as a principal with the next leg in the transaction chain adding his/her profit margin at each stage, thereby increasing the overall cost in the supply chain. The international Business Division of ITC started the new initiative namely e-Choupal (village meeting place on an electronic platform).

ITC AND E-CHOUPAL

ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 14 billion and a turnover of over US $ 5 billion. ITC ranks among India's '10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC has a diversified presence in cigarettes, hotels, paperboards and specialty papers, packaging, agri-business, packaged foods and confectionery, information technology, branded apparel, personal care, stationery, and other FMCG products.

ITC is a major exporter of soya bean. It used to buy soya bean mainly from local markets. This created the problem of poor quality produce; need to handle a large variety and high cost of intermediation.

ITC's Agri Business Division conceived e-Choupal1 as a more efficient supply chain aimed at delivering value to its customers around the world on a sustainable basis. e-Choupal is an initiative to link directly with rural farmers for procurement of agricultural / aquaculture produce like soybeans, wheat, coffee, and prawns. It offers farmers all the information, products and services they need to enhance farm productivity improve farmgate price realization and cut transaction costs. Farmers can access the latest local and global information on weather, scientific farming practices as well as marker prices at the village itself through a portal. It also facilitates supply of high quality farm inputs as well as purchase of commodities at their doorstep.

Another path-breaking initiative - the 'Choupal Pradarshan Khet', brings the benefits of agricultural best practices to small and marginal farmers.

BUSINESS MODEL IN PRACTICE

Village internet kiosks managed by farmers - called sanchalaks - themselves, enable the agricultural community access ready information in their local language on the weather and market prices, disseminate knowledge on scientific farm practices and risk management, facilitate the sale of farm inputs (now with embedded knowledge) and purchase farm produce from the farmers' doorsteps (decision making is now information-based).

Real-time information and customised knowledge provided by 'e-Choupal' enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality and productivity. As a direct marketing channel, virtually linked to the 'mandi' system for price discovery, 'e-Choupal' eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs.

They also use the e-Choupal to order seeds, fertilizers, and other products such as consumer goods from ITC or its partners, at prices lower than those available from village traders; the sanchalak typically aggregates the village demand for these products and transmits the order to an ITC representative. At harvest time, ITC offers to buy the crop directly from any farmer at the previous day's closing price; the farmer then transports his crop to an ITC processing center, where the crop is weighed electronically and assessed for quality.

The farmer is then paid for the crop and a transport fee. "Bonus points," which are exchangeable for products that ITC sells, are given for crops with quality above the norm. In this way, the e-Choupal system bypasses the government-mandated trading mandis.

Farmers selling directly to ITC through an e-Choupal typically receive a higher price for their crops than they would receive through the mandi system, on average about 2.5 percent higher (about INR 250 per ton). Due to e-Choupal there has been a dramatic shift towards soy plantation (from 50 to 90 percent in some regions). Simultaneously, the volume of soy marketed through mandis has dropped by as much as half. On the contrary, ITC has benefited through lower procurement costs and having more direct control over the quality of produce. The system also provides direct access to the farmer and to information about conditions on the ground, improving planning and building relationships that increase security of supply. The company reports that it recovers its equipment costs from an e-Choupal in the first year of operation and that the venture as a whole is profitable.

The system also links farmers and their families to the world. Some sanchalaks track futures prices on the Chicago Board of Trade as well as local mandi prices, and village children have used computers for schoolwork, games, and to obtain and print out their academic test results. The result is a significant step towards rural development.

e-CHAUPAL VALUE CHAIN: TWO WAY CONDUIT

ITC contends that such a market-led business model can enhance the competitiveness of Indian agriculture and trigger a virtuous cycle of higher productivity, higher incomes, and enlarged capacity for farmer risk management, larger investments and higher quality and productivity.

Further, a growth in rural incomes will also unleash the latent demand for industrial goods so necessary for the continued growth of the Indian economy.

This initiative also creates a direct supply chain to ITC, which buys the agricultural produce directly from farmers. ITC ensures a secure supply of produce to itself through this and also lowers its procurement costs by eliminating traders and intermediaries. ITC also uses the e-Choupal as a medium to advertise its consumer products where farmers can buy ITC's products.

CURRENT STATUS

Launched in June 2000, 'e-Choupal', has already become the largest initiative among all Internet-based interventions in rural India. 'e-Choupal' services today reach out to over four million farmers growing a range of crops - soyabean, coffee, maize, wheat, rice, pulses, shrimp - in over 40,000 villages through 6,500 kiosks across ten states (Madhya Pradesh, Haryana, Uttarakhand, Karnataka, Andhra Pradesh, Uttar Pradesh, Rajasthan, Maharashtra, Karela and Tamil Nadu).

TECHNOLOGY

ICT of e-Choupal: A False 'Win-Win' Solution in a World of Unequal Actors

Undoubtedly, one of the greatest opportunities for development ushered in by ICTs has been the enhanced possibility for collaboration among different actors working towards specific development goals.

Widely acclaimed as an ICT success story, it typifies the complete corporatisation of the social enterprise model. An initiative seeking to become the Wal-Mart of rural India, e-Choupal is a gateway to an expanding spectrum of commodities leaving farms and also selling to rural India fast moving consumer durables, automotives, banking and insurance services. Based on a business model providing connectivity and services to a closed network of farmers through an entrepreneur whose role, interestingly, is projected by ITC as a "public office", e-Choupal exemplifies the win-win problematique.

However a study of the model, from a development perspective, unpacking the socio-politics of the e-Choupal ecosystem, indicates a monopolistic control over the entire local agriculture ecology by a transnational corporation through the use of a captive ICT infrastructure, with no regulation and no competition. The e-Choupal hubs serve as sales outlets for agriculture and other products and services.

Cutting off alternative systems, local middlemen and government services, e-Choupal locks in a large number of farmers into its network. While the project has resulted in some increase in rural agricultural incomes through privatization driven efficiency improvements in the procurement chain, e-Choupal underscores 'trickle-down' and individual enterprise at the village levels. The average village shopkeeper/entrepreneur is bound to get affected as local demand for goods and services shifts to ITC and choupal sagars. Needless to mention livelihoodstraders/middlemen whose livelihood has been squelched through this model.

Further, the 'DNA' profile of the farmers acquired during the registration of e-Chaopals has allowed ITC to determine and understand their buying behaviour very closely. This has allowed targeting, positioning and delivering goods and services to match their needs and wants continuously, succinctly called Customer Relationship Management (CRM) in marketing parlance. This makes them more vulnerable to a shift from the present more or less sustainable existence to materialistic consumerism. Lack of awareness of their (farmers's) rights may not guarantee total protection of the database and its unethical usage. This is where the government is expected to protect its citizens from such transactions. However, the government has been changing slowly but surely towards a free market economy.

ROLE OF GOVERNMENT

Reorienting the Socio-Economic Paradigm

At a time when thousands of farmers have committed suicide in the past few years throughout the country, the government's intention of introducing future trading in rice, wheat and other commodities shows complete bankruptcy in finding alternatives. In India, the average land holding size is 1.47 hectares, and only five to ten percent of the farming population has land holdings exceeding four hectares. To expect farmers, who continue to survive against all odds year after year, to go online and trade seems to be the wild imagination of a stockbroker.

Even in America, it is not farmers who trade at the stock markets. It is the trade, which does that. If only future trading was a viable mechanism to ensure lock in prices of future production or sales, and provide efficient management of price risks through hedging, there was no need for rich countries to shell out monumental subsidies for agriculture. If American farmers, with the level of education and the size of landholdings, do not find future trading to be helpful, it is strange how the Indian government is promoting it as a saviour for the farming community (Sharma).

It is known that the government is slowly withdrawing from food procurement citing the unwieldy procurement structure and inefficiencies in the system as the main reason. Food procurement however was an essential measure to provide an assured market to farmers. By withdrawing from food procurement, it is obvious that farmers are being penalized for the inefficiency of FCI (Food Corporation of India).

The emergence of 'e-Choupal' is also timed with the withdrawal of safety nets like changes in the Agricultural Produce Marketing Acts (APMC) which were designed to ensure farmers get a proper price. The markets and mandis were governed by elected market committees with predominance of agriculturalists for the management of the market. By having many traders, and a ceiling on volume traded, monopolies could not emerge in mandis. In affect, the model act is an act to legalize exploitation by removing all regulations on price and volume of purchase instead of proper implementation of laws. The model act promotes creation of monopolistic buying by agribusineses. This is how ITC has set up its e-Chaupals against which there are protests and statewide strikes.

ISSUES FOR DISCUSSION

1. What wider social-economic implications does e-Choupal holds for rural India in the long term?

2. Is e-Choupal a tool for rural empowerment or further rural consolidation?

3. Is the model scalable at the national level?

4. Is it another high profile publicity gimmick coming from a multinational?

5. What are the benefits accruing to ITC? Do these benefits outweigh the benefits to society? How do we evaluate?

Subject: Information technology; Agribusiness; Supply chain management; Case studies; Rural areas; Agricultural economics

Location: India

Company / organization: Name: ITC Ltd; NAICS: 312221

Classification: 9110: Company specific; 5160: Transportation management; 8400: Agriculture industry; 5220: Information technology management; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 262-269

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600107

Document URL: http://search.proquest.com/docview/745600107?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 46 of 100

SECTION 5. BUSINESS- LEVEL STRATEGIES: FOCUS ON MARKETING - Chapter 27. A Case Study on Competitive Strategies of Tripenjoy.Com: A Travel Portal

Author: Shah, Dharmesh; Shah, Juhi

ProQuest document link

Abstract:

This case study describes the competitiveness of a travel portal - Tripenjoy.com which is part of Bhagwati Aviation Services Pvt. Ltd., that operates in the field of coal and lignite, tours and travels business sectors for the last eight years. It has an excellent relationship and widespread network with all leading hotels and airlines. The focus is on understanding the strategies and practices that enabled Tripenjoy.com to survive in a competitive environment. Tripenjoy.com, apart from providing basic travel services at affordable prices to their customers, also offers services like flight, hotel, cruise and car booking, visa information, travel guide for different cities and new services like STD code finder, distance calculator, currency converter, map locator and m-commerce which help customers to surf this travel portal from their mobile. The account draws on the competitive strategies, processes and mechanisms employed by Tripenjoy.com, using both primary and secondary data, and shows how it has been successful in creating and sustaining their image in the minds of prospective customers. This case provides a framework for discussing strategic issues connected with travel portals, and also provides insights into how new travel portals can survive and develop inspite of stiff competition. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Dipal Desai, Director, Bhagwati Aviation Services Pvt. Ltd, encountered a situation some two years ago when a customer care executive booked a ticket for Dubai instead of Mumbai. This made him ponder on the reasons which led to this problem. He was trying to find out if the executive, or the client, was responsible for this mistake. Later he realized that the problem was neither because of the executive or the client, but was a major communication gap between two parties.

This small incident made him realize that traditional travel agencies would find it difficult to survive if such situations arose in this era of technology. In January 2008, he launched an online travel portal 'TripEnjoy.com' under the umbrella of Bhagwati Aviation Services Pvt. Ltd. He strongly believed that TripEnjoy.com would provide benefits to direct users, avoid problems of communication gaps, would give customers relief from waiting time during telebooking, provide easy access to customers to any place in the world, generate a lot of options in one window, lead to speedy decision making, and no time constraint, etc. He made travel booking a pleasant experience for clients. Just a 'click' and one could book the a desired airline, hotel or buy a holiday package to national and international destinations.

BACKGROUND OF ONLINE TRAVEL AGENTS

The concept of online travel booking was established in the west by the beginning of the 21st century. But, it was MakeMyTrip.com which in 2000 brought the online travel concept to our country. In the current online travel scenario, Online Travel Agents (OTAs) in India are not only innovating various revenue generating products, but are making the online experience more reliable. This industry has been upgrading its product offerings and services in terms of security of payment choices and technology to win the faith of prospective clients.

The online travel industry was started with the objective to make the travel booking experience more convenient and hassle free. Today, travelers go online with the prime objective of finding the perfect travel solution at a reasonable price. Online Travel Agents (OTAs) are offering end to end travel services to ensure customer satisfaction and loyalty. As a matter of fact, most customers prefer comparing products, prices and special offers of various OTAs before booking online. The aim of a specific design of a website is to enhance the 'user friendliness' of the site for users.

When booking online, one can't ignore the appearance of the site. One would check the placement of icons, advertisements, offers, best deals, etc. Here the first impression definitely makes a lasting impact on consumers' minds. For a common user, a 'good' website is one which is 'user friendly'. A website should be both easy to use and appealing to the eye.

The online travel industry in India has witnessed tremendous growth and is attracting a large number of national and international players. Increasing internet user base, secured online payment mechanisms and entry of low-cost carriers are some of the factors driving the online travel market. The online travel sector in India is taking a big leap with MakeMyTrip, Yatra, TravelGuru, ClearTrip and a few others who already have made their presence felt and lucratively inviting others to join the race in the OTA trend. Online travel sales in India will nearly quadruple to US $2 billion by 2010, according to Euromonitor. The online travel market is growing in several Asian countries, thanks to rising internet use in large cities. India will be Asia's fastest growing market for online travel retail by 2010, according to the global market analyst Euromonitor International. Other markets topping the table include Vietnam, Hong Kong, Indonesia and China, as online travel retail takes off in Asia.

Traditional travel agents have been feeling the heat ever since online travel agencies set up shop in the country around three years back. The half-a-dozen or so online players, who incidentally earn a part of their revenues from the 5 percent commission airlines pay, currently account for a 11 percent share of the travel business, clocking revenues to the tune of US $1.7 billion in 2007. In fact, recent research by PhoCusWright suggests that their share of the pie is likely to grow to US $2.7 billion in 2008 and touch US $5.7 billion by 2010. This is a cool 22 percent of the total estimated travel market of US $25.8 billion by 2010. Online travel agencies such as Make My Trip, ClearTrip, Yatra and TravelGuru are together expected to account for a third of all online transactions by 2010, while the share of traditional travel agencies is likely to come down from 15 percent in 2007 to 10 percent during the same period. Travel and tourism is one of most promising and mature industry segments in India. Today, it is the second highest foreign exchange earner for India, and the government has given travel and tourism organizations export house status. The buoyancy in the Indian tourism industry can be attributed to several factors.

First, the tremendous growth in the Indian economy has resulted in more disposable incomes in the hands of the middle class. Second, India's status as an IT hub has been attracting more business travel, and third, the aggressive advertising campaign, Incredible India by the tourism ministry has played a major role in changing the image of India from that of a land of snake charmers to a hot tourist destination, sparking renewed interest among foreign travelers. India has a culturally diverse population of 1.4 billion people, a growing middle class and a developing economy in which travel is a commodity in daily use. About US$130 million has been poured into the OTA space in the last 30 months, indicating the serious potential of online travel in the country. The Indian domestic air market will double in size from US$3.6 billion to reach US $7 billion in 2010; the market share of LCCs rose to 49 percent in 2008. Indian Railways has emerged as the largest online travel website in APAC in transaction volume, tracking 113,000 transactions per day. In India, religious travel is not a niche - it is akin to leisure travel. Religious travel accounts for almost 20 percent of the total trips taken by the middle class in India. The travel problem in India is not only air and hotels. It is the about the last mile. The bus segment has also seen the entry of online bus aggregators like Redbus and Ticketvala.com. Bhagwati Aviation was established in 2001 with the objective to assist people for offering customized travel solutions. It is the leading travel and tourism company providing quality travel and related services and solutions.

OVERVIEW OF TRIPENJOY.COM

TripEjoy's mission is to provide best travel experiences at affordable prizes. It is a comprehensive resource center, designed to provide independent and alternative travelers with all the information and inspiration they need to plan their travels in India and abroad. Bhagwati Aviation has presence in countries like Dubai, Malaysia and many more. They are also associated with SOTC, the world's best tour organizers. They want to touch the lonely places of the world and promote them. Their goal is not only to promote day to day packages but promote new destinations to the new generation. They want to enter into the heart of human beings who do not know how to travel and when to travel. TripEnjoy.com, apart from providing basic travel services at best affordable prices to their customers, also offers services like flight, hotel, cruise and car bookings, visa information, travel guide for different cities and new services like STD code finder, distance calculator, currency converter, map locator and m-commerce which help customers to surf this travel portal from their mobile and book their trip.

Comparative Analysis of Services Offered by Leading Travel Portals

A brief comparison is shown between the leading OTAs and TripEnjoy.com on parameters like travel services which include flight, hotel, cruise, car, train and bus booking, tour packages (domestic, international and corporate) and visa and passport support. Also travel tools like m-Commerce, S.T.D code finder, distance calculator, map locator, currency converter, travel guide and travel insurance are considered in this analysis.

YATRA.COM

Yatra Online Pvt. Ltd. provides information on pricing, availability and booking facilities for air travel, hotels, train, buses and car rentals across the globe. It has placed information related to its travel products at the top of the window which makes the homepage very clear and simple. In terms of booking air tickets, the portal offers two options, 'Find Flights within +/- 2 days' and 'Find Exact Dates'; this makes the search easier and saves time. 'Lowest Domestic Fares for a Month,' which is placed on its home page is the unique feature of this portal.

Yatra has a dedicated category 'Corporate Travel' and another 'Off-sites and Events' for corporate and MICE travel respectively. Currently, it offers flights, hotels, holidays, activities on both the international and domestic fronts, while added services like buses, cars, city guides and deals are offered on the domestic front.

MAKEMYTRIP.COM

MakeMyTrip is the pioneer of the online travel industry in India. It is the dominant market leader with over 50 percent market share. It has also placed its product offerings on the top of the window which makes surfing easier for prospective travelers to search information on flights, hotels, etc. It is efficient in offering innovative options for domestic and international holiday packages. On the left hand side, airline tickets, hotels, rail and bus booking options are available, in order to gain maximum visibility. The website offers the prospective traveler two options 'Search for Flights' and 'Search for flights + Hotels'. And it also offers 30 percent discount on booking if prospective travelers select the latter option. Apart from these offerings, it has made search easier by giving additional search options for business class, airline, night flight and also to check flight status. An interesting and innovative service on the site is 'travel guides', which provide a direct link to information on Indian and international destinations. It also includes travel stories, travel videos and fairs and festivals of India. Also the site provides an easy stepby- step booking which includes search-selection-reviewing-travelers-details-paymentverification. MakeMyTrip.com offers India's first comprehensive travel product on the mobile. It allows customers to search, book, pay and fly through transactions and PNR solely on the mobile phone. They have tied-up with Paymate and Airtel to offer m-commerce services.

CLEARTRIP.COM

According to a survey by 'JuxtConsult Consumer Research' held in March 2008, cleatrip.com is considered to be one of the most user friendly websites. It believes in simple user interface and effective use of technology. The information displayed on the home page shows options for flights, hotels and trains in a very simple and clear manner. ClearTrip Holidays also offers holiday packages of Indian Railways and Catering Tourism Corporation Limited (IRCTC). The site does not need much scrolling on the user's part to check the availability of the desired flight and current offers, and it is free of animation and distracting advertisements. The current range of products offered by ClearTrip includes search and booking for domestic Indian flights, domestic and international hotels, mobile services for travel and global destination guides. A unique feature of the website is its service of offering comprehensive products with competitive pricing through various air fare graphs/ calendars/alerts and mobile search, train PNR status, train calendar, and hotel directory, India hotels options. ClearTrip also provides transparency in terms of complaints and feedback posted by clients on the portal.

TRAVELGURU.COM

TravelGuru, a Travelocity global company is India's leading travel website, offering the best prices on hotels, holiday packages and flights across India and the world. TravelGuru makes planning and buying a holiday or a business trip easy and convenient.

TravelGuru's current product offering consists of airline tickets, hotel rooms, vacation packages and cruises. TravelGuru - India's largest hotel distribution network - offers access to more than 4,000 hotels in India and over 72,000 hotels worldwide. It offers travellers the opportunity to plan and purchase their travel in a transparent, easy and customizable manner with instant bookings and confirmations. Sorting hotels by user reviews and several other criteria, are some of the distinctive value-added services. The TravelGuru hotel advisors guide you to the most convenient place to stay including rates, amenities, landmarks and so on across India. It promotes properties from budget to luxury, single room to serviced apartment, business accommodation to leisure houseboats.

Though the hotel and flights section is appropriately placed on the left side of the page, the top side of the window has information regarding hotels, flights, holiday packages, weekend breaks, international and travel guide. The latest offers of TravelGuru.com are flat 25 percent or 20 percent cash back on Trident, Fortune, Royal Orchid, Ginger and many other leading hotels across India.

TRAVELMARTINDIA.COM

TMI is a part of the Gursahani group of companies and has presence in various sectors like travel, healthcare and real estate management etc. It offers travel services like airline ticketing, corporate travel management, worldwide hotel reservations, group tours for incentives, dealer conferences, car rental services, foreign exchange, travel insurance, visa services etc. The homepage of this travel portal gives the prospective traveler information regarding domestic, international, round trip and one way on the left side of the window. Also details regarding domestic and international vacations are mentioned on the homepage. Apart from services, it also facilitates clients with travel tools by assisting them on weather details, maps, visa services, passport, currency converter, and railways.

TRIPENJOY.COM

TripEnjoy has developed its portal considering the psychology of the Indian traveler. The portal is very simple and uncluttered. All the information regarding services offered like flights, hotels, holidays, visa, cars, cruise, mobile, travel guide and international packages are placed on the top of the window. On the right side of the website, images of international destinations are highlighted which keep on scrolling. In the middle of the website, they have focused on world tour destinations like Dubai, New York, Kuala Lumpur, Singapore and Sydney. As a prospective traveler, one would like to know more details regarding cities, currency, visa services, distances between various cities, etc. TripEnjoy has understood these requirements of a traveler, and provides unique services to their clients like S.T.D code finder, distance calculator, map locator, currency converter, time converter and travel guide. It has also come up with an innovative idea of resolving consumers' queries using online chat through Yahoo!, Hotmail and Gmail.

EXISTING MARKETING STRATEGIES OF TRIPENJOY.COM

TripEnjoy.com's marketing activities are aimed at:

* Increasing its reach among corporate and family tourists.

* Finding new clients from various geographical locations of the world

* Promoting line service benefits for existing members

TripEnjoy.com believes in B2C strategy and for implementing the same strategy the company has spent Rs. 5.5 million in marketing activities in 2008-09.

TripEnjoy.com clients visit this travel portal through five main sources:

* Bhagwati Aviation clients (word of mouth)

* Relationship managers and sales force

* Class publicity (sponsorship of various events)

* Radio advertisements (Radio One & Radio City Advt.)

* Magazines (air line magazines)

TripEnjoy.com has come up with a marketing strategy of sponsoring various events like Navratri Garba Utsav, various Gujarati and Hindi plays, music concerts, club functions, travel fairs and academic events etc. This strategy gives direct exposure to TripEnjoy.com for spreading awareness about the online travel portal and also provides information to clients about the benefits of the travel portal. This strategy was implemented in January 2008 and has covered almost 15 mega events in a year.

TripEnjoy.com believes in providing maximum services to the existing clients of Bhagwati Aviation company. The entire idea behind travel portals emerged from the demand of existing clients of the same company. So initially TripEnjoy.com facilities were available only to their existing clients, but now any prospective traveler can log on to TripEnjoy.com and avail its services.

With the strong corporate client base of Bhagwati Aviation, TripEnjoy.com introduced its portal services to all travel seekers. TripEnoy.com main strength are their existing customers who always provide word of mouth publicity to new clients. TripEnjoy.com also believes in referral marketing. Managing customer relationship is the marketing mantra for TripEnjoy.com. TripEnjoy.com has relationship managers and front line sales force to market their portal facilities in the Ahmedabad market.TripEnjoy.com audio advertisement is very famous in the Gujarat market. It has already been covered by Radio One and Radio City in their channels. Radio is a very strong media vehicle for creating awareness of a travel portal. TripEnjoy.com also provides lots of free sponsorship like holiday packages, air tickets etc. to radio listeners and participants in various ongoing radio games and contests. TripEnjoy.com also places advertisements in print media of select airline magazines. This will lead to tapping only select clients who are relevant for the business.

FUTURE MARKETING STRATEGIES OF TRIPENJOY.COM

For succeeding in a tough competition of travel portals in the world market, TripEnjoy.com has also planned to spend another Rs.10 million on their marketing activities which makes it a total marketing budget of Rs.15 million for of 2009-10. TripEnjoy.com believes in B2C strategy and is now planning to open their strategy for B2B2C. The future marketing activities for B2C strategy are in areas such as:

* Hoardings across the country

* Travel related magazines

* Promotions at airports

* Promotions through free tickets

* Promotions through events

* Tie up with leading websites (Yahoo, Rediffmail, Hotmail etc.)

The future marketing activities for B2B2C are:

* Invite channel partner in domestic business

* Franchising for international business

TripEnjoy.com believes in appointing travel dealers between travel portals and clients. These dealers will also get some quota from the travel portal for airline, hotel, package booking etc. Through this quota, they will provide benefits to their clients. The franchising concept is very famous in distribution channels. TripEnjoy.com plans to provide their franchisee to international players, so international clients get awareness and accessibility of TripEnjoy.com from their own persons. The company believes that to receive service from your own person will lead to belongingness and loyalty for the same.

FINANCIAL INSIGHT OF TRIPENJOY.COM

Investment

Investment at TripEnjoy.com is around Rs. 37.5 million for portal development.

Revenue Expenses

Apart from the one time investment, the company is also spending on the following revenue expenses:

INCOME GENERATION & FINANCIAL ASSISTANCE:

TripEnjoy.com earns income from the following sources:

Online air booking: 3 percent margin

Hotel and cruise booking: 8 percent margin

Space distribution (airline- hoteliers 1x1 inch):Rs.11000 p.a.

Space distribution (Promotion of tourism board in visa section 2x9 inch):Rs.51000 p.a.

The company believes that any travel portal can achieve its break even point within three years. But the major drawback for travel portals is because no single bank is ready to provide financial assistance to them.

CONCLUSION

Over the last nine years, Bhagwati Aviation Services Pvt. Ltd. has only grown in the Ahmedabad market but TripEnjoy.com will facilitate it for becoming a global player. The existing strategies adopted by TripEnjoy.com has created a strong brand image in the minds of domestic customers. In the coming years, it has focused on increasing its marketing budget to generate awareness and visibility of this portal.

With these new strategies, would TripEnjoy.com be able to sustain and develop in this competitive industry?

Subject: Case studies; Web portals; Competition; Travel agencies

Location: India

Company / organization: Name: Bhagwati Aviations Services Pvt Ltd; NAICS: 561510

Classification: 5250: Telecommunications systems & Internet communications; 8350: Transportation & travel industry; 9110: Company specific; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 270-278

Number of pages: 9

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600146

Document URL: http://search.proquest.com/docview/745600146?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 47 of 100

SECTION 5. BUSINESS- LEVEL STRATEGIES: FOCUS ON MARKETING - Chapter 28. The Street Vendors of Bangkok: Alternatives to Indoor Retailers at a Time of Economic Crisis?

Author: Walsh, John C

ProQuest document link

Abstract:

During an economic crisis, consumers will use different techniques to make their money go as far as possible: more carefully comparing prices at point of sale locations, bringing out coins they previously left unused in saving banks, switching to lower cost options and choosing to shop in less convenient locations in order to find discounts. One such option is to use street vendors rather than regular indoor retailers. While the majority of vendors have quite low levels of ambition, earn minimum wages, or less, and have little concept of marketing, or adding value to products, there are other vendors who have organised their own international supply chains, contract manufacture their own branded goods and franchise stalls throughout the city of Bangkok. In some cases, therefore, street vending should be encouraged because it can offer a route out of the informal economy and into the formal economy for people who might not otherwise be able to achieve regular employment. Vendors also offer, in some cases, good quality alternatives to indoor retailers and help keep prices as a whole down. So when should the informal economy be supported and when should it be regulated on the basis that its low standards and semi-legal status damage the economy and society as a whole? [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

The informal sector plays an important role in any developing nation, albeit one that is controversial and often difficult to understand. It includes a very wide range of experiences and degrees of security. Many of the jobs available in the informal sector are illegal in themselves, or else have some illegal aspect to them; for example, most people in the sector do not pay taxes or abide by public health ordinances and regulations. This makes them inherently dangerous because of the possibility of arrest by the police, or harassment by officials, acting corruptly, or by organised criminal gangs. At the same time, informal sector workers find it very difficult to obtain public services and to gain access to the kinds of resources and training that would be important in helping people move from the informal sector into the formal sector. Most governments have the policy goal of encouraging people to move out of the informal sector and into the formal sector for such purposes as broadening the tax base, increasing regulation of conditions in the labour market and enhancing the ability to plan for the future.

Street vending is an important part of the informal sector and one which can occupy a midway point between the official and unofficial economies. Street vendors can provide cheaper goods because, in many cases, they do not need to pay for electricity or water bills, and their rental costs can be much lower .Further, vendors themselves may be more willing to enter into haggling negotiations and offer cash discounts to well-known or regular customers. However, it would be wrong to assume that all street vendors are the same in terms of character, or that they operate according to the same business model. Research among street vendors in several locations reveals a wide variety of experiences, ability to provide value added goods and services and intentions and ambitions for the business concerned.

Street vending must, by its very nature, be a visible occupation because customers will not buy from someone who cannot be seen - especially in Bangkok, where demands for attention are numerous. Consequently, anyone walking the streets of that city is constantly assailed by appeals to all the senses and encouraged to buy food, beverages, clothes, accessories, pirated goods and items of all kinds. As Table 1 shows, there are more than 16,000 registered street vending businesses in the capital - how many unregistered businesses also exist is of course unknown. The majority of the registered businesses are related to food and these cover stationary and mobile stands. Food-related vending represents the typical vision of what such a business of this sort is like - it is a low value- added, low-profit, low-skilled operation which offers little opportunities for sustainable employment growth without external financial support. Yet these 'old generation' of street vendors are increasingly being accompanied by new generations of vendors, many of whom have education in business subjects and are capable of using techniques and skills learned to improve their businesses sustainably and achieve competitive advantage on a long-term basis.

One of the principal turning points in the emergence of a new generation of street vendors was the 1997 Asian financial crisis, together with various aspects of urban development and policy. These issues are explained in the following sections.

THE 1997 CRISIS

The 1997 Asian financial crisis began in Thailand with a run on the national currency, the baht, which was defended by the Central Bank. Such a defence was impossible to maintain and, subsequently, structural weaknesses in the Thai economy were exposed and, then, exacerbated by the IMF's program of cuts and market openings as conditions for lending needed money. A large number of factories and other businesses were closed, many needlessly as a result of the IMF's approach, with a great loss of jobs. What happened to the unemployed varied according to who tells the tale: on the one hand, it is argued that most of the jobless returned to provincial hometowns where relatives, exhibiting characteristic Thai kindness, tended to them and supported them; on the other hand, it is also argued that although many people did return to provincial homes, that then resulted in under-employment and poverty as existing employment opportunities were divided among a suddenly much larger number of workers. In any case, research has shown that a substantial number of individuals, among them many former white collar workers, decided to remain in the capital city of Bangkok and put into practice their acquired commercial skills in creating their own street vending businesses. In doing so, they created a sub-set of street vending businesses that may be called 'new generation.' Gathering around urban spaces where emergent supply of foot traffic is evident, such as close to the Skytrain and Subway station entrances, the new generation is able to target more upmarket and profitable goods and services - mass transit ticket prices are low in international terms but still high enough to exclude most of the city's population, at least on a regular basis. These vendors represent a means of starting a successful business that may be emulated by those unfortunate individuals who may lose their jobs in the present economic crisis. However, to date, the 2008-9 financial crisis (which is likely to continue beyond the end of the year) has primarily affected people in the manufacturing industry, with factories closing largely as a result of decreased demand for Thai exports. Most such workers are comparatively poorly-educated and with few resources to start a business outside of the old generation mentality.

However, it is important to note that, in terms of numbers, the great majority of street vendors remain firmly within the low value-added sector, with few prospects or ambitions to improve their situations. This is the most common circumstance: research both in Bangkok and elsewhere indicated that most street vendors retain very low aspirations for their business.

SPATIAL CHANGES AND URBAN MANAGEMENT

Street vendors in Bangkok are convinced that it is necessary to be as close as possible to potential customers in order to be successful. Bangkok residents tend not to walk very far: it is hot, the pavements are often cluttered, dirty and even hazardous, pollution and heavy traffic also reduce the attractiveness of the prospect of walking. Consequently, vendors are always alive to the changing flows of foot traffic in the city. Once the subway and skytrain systems opened, for example, they represented important changes in the flow of traffic, especially at regular and predictable times during the day. The stations also had an impact on residential patterns as people sought, over the medium to long-term, to move house to somewhere conveniently close to such a station. Consequently, vendors have done what they can, to open their stalls in proximity to these new and very desirable facilities (there is also additional retail space within the stations themselves, which some have sought to explore). This has brought some conflict with the Bangkok Metropolitan Administration (BMA), which is the organisation charged with managing the city. In general terms, the BMA would like to clean up the city and create a kind of 'living museum,' in which colourful and longstanding economic activities are restricted to well-regulated sites to which tourists and residents may be directed. These sites would offer electricity and water supplies as well as public health amenities. Money would be recovered from street vendors in registration fees and subscriptions to offset the initial costs. Moving to such sites is resisted by most street vendors on account of the cost of doing so (including the costs of becoming an official part of the taxation system) and because of the comparatively long distance it would put between vendors and potential customers. To date, BMA's efforts have received mixed results: there are success stories, such as the Bon Marche market in the north of the city, which is aimed primarily at middle and upper class customers who drive and park their cars in the car park provided. The quality of the goods available is generally high, but so too are the prices; few bargains are available at this market and there is clearly a limit to the number of such markets that can be successfully accommodated in the city. On the other hand, attempts to clear some of the older and less picturesque markets in central Bangkok have led to violence and resistance. Gangsters have been joined by, it is alleged, off-duty law enforcement and military personnel in attempts to forcibly remove vendors from the spaces they have occupied for a number of years.

On the whole, the spread of large, air-conditioned shopping malls and hypermarkets throughout Bangkok (and much of the rest of the country) has provided an expansion of space into which street vendors have moved in large numbers, is perhaps the most evident and important evolution in street vending. Within the air-conditioned malls people can shop with some ease and pay a premium on goods and services for doing so; outside, they can find alternatives at lower costs but with some inconvenience in shopping behaviour. Thai consumers largely enjoy the opportunity for greater choice that this provides and the synergy shows a flourishing relationship.

GENDER IMPLICATIONS

Although Thai society is more tolerant of women working in the public sphere than some others, it is nevertheless true that there are limitations on what kinds of work women can do and still maintain respectability. This is particularly true of urban areas, since these are removed from the traditional division of labour attached to agricultural activities. Few Thai women have had public roles in urban work, which was usually reserved for migrant male workers, notably those from China. As a result, the spread of street vending across different parts of Bangkok and, especially, the up-market versions of street vending, has expanded the space in which women can work respectably. When patterns of retailing have changed, in spatial terms, then the places in which women work have also changed.

Additionally, the communal nature of much street vending work and its seasonal or daily nature make it possible for women to combine commercial activities with caring for children or elderly people. For example, a woman whose vending work focuses on catering to a lunch time clientele, can combine this with taking children to school prior to working and then collecting them afterwards. Networking among vendors also offers some opportunities for women, especially, to take care of dependents as well as commercial interests on a group basis. It is also the case, especially among some parts of the low value- added sector, that street vending operations are started by women who have accompanied male migrant workers to the city, and who see an opportunity both for some additional income and, also, a means of passing time. Women in this category will plan to work as long as their male companion or relative is contracted to the work, and will then abandon it once it is time to return to the provinces. This is another example of the variation in aspirations in terms of starting a new business and a reminder of the need to take street vendors and their operations on a case-by-case basis.

MARKETING

For most street vendors, marketing is a basic process and mostly involves calling out to people as they pass by the stall. Few vendors who are employees have received any training and so they rely on their instincts as to when to call to a potential customer. The only other form of marketing used is to offer a discount to a regular or important customer, although haggling is possible in some cases, especially for those vendors who own their own business. The ability to get on well with customers is prized among street vendors and their employees. This requires not just friendliness but the ability to determine when a sale is possible and when time would be wasted. Given the problems that street vendors occasionally face, the ability to face up to intimidation and threats is also required, and this means a certain toughness of character is also helpful.

For the new generation of street vendors, this situation is rather different. Some conduct (informal) market research and integrate the results with their own understanding of business and of the nature of their customers. This has led some to create their own brands, using the flexible manufacturing systems available in factories-for-rent in the eastern seaboard region. They will design the brand and use it on a variety of products, including clothes and fashion accessories, taking care not to order too many items to be made until the level of demand is determined. Customers are generally willing to pay a modest premium for a branded item.

Distribution for most street vendors is generally handled through daily visits to markets on the outskirts of Bangkok. Several wholesale markets are held regularly and early morning visits are made to acquire stock for the day: often, male members of a family will handle this aspect and female members, the retail aspect. People will visit the markets very early in the morning in order to obtain the more promising types of stock and also to avoid the build up of Bangkok's notorious traffic.

For non-perishable items, there may be some redistribution of items which are not selling well at a particular location. Moving products from one area to another might be accompanied by a change in price, sometimes cheaper but sometimes more expensive. For example, one street vendor has several stalls selling female fashion items. The first stop for these items is at a north Bangkok university campus, where a twice-weekly market is organised: goods which are not sold there may be redirected to the Khaosan road area, where many foreign backpacker tourists congregate. In that case, the prices are generally raised for the foreign customers (although there are some style and size issues to deal with). The same vendor also has a regular space in the very crowded Mah Boon Klom (MBK) Centre in the heart of Bangkok's retail sector, but is very careful with stock management in that outlet because of the high price of storing goods out of working hours. This vendor is always concerned with trying to make sure that only that stock which can be quickly moved on is purchased in the first place. Being left with a large amount of unsold stock at the close of business would be a significant problem.

In terms of the marketing mix, while there is some flexibility for smart street vendors to vary the product and the place where operations are conducted, it is clear that price is the variable which is the easiest to manipulate, and the one which is most commonly changed. Interestingly, research indicates that Thai consumers are keen to demonstrate that they are good at negotiating price and understand the value of a product: they are, generally, willing to pay more for a higher quality item and also expect to pay less for a lower quality item. What is most important is not to lose face by having to admit that they have overpaid for an item, whether that means admitting the error to a close family member or a chance acquaintance.

FROM THE INFORMAL TO THE FORMAL?

Since it is a general policy goal to move people from the informal sector to the formal sector, it is necessary to consider how this may be effected and improved. As small scale entrepreneurs, street vendors face the usual set of restraints that such businesspeople face in planning growth and expansion: lack of resources, difficulties in obtaining finance and lack of skills and competencies (and the time to acquire them). The Thai government from 2001-2006 introduced a number of schemes to enhance the ability of entrepreneurs to upgrade their businesses but more needs to be done to make their services available to street vendors - it is necessary, as Hernando de Soto would argue, to recognise the assets of a street vending business as assets on which leverage may be obtained before vendors would be able to improve their situations. Recently, Muhammad Yunus, the Nobel Prize winner, has announced the opening of a branch of his Grameen Bank associated with the Asian Institute of Technology in Bangkok. Although this project seems likely to be devoted primarily towards agricultural issues, it might prove possible to develop a stream of finance and support for urban vendors. The ways in which legal and institutional support need to be changed and structured to promote street vendors, if it is decided that they should be supported, will vary from country, to country and indeed from region, to region within some countries.

Subject: Vendors; Economic crisis; Informal economy; Consumer behavior; Studies

Location: Bangkok Thailand

Classification: 9130: Experiment/theoretical treatment; 7100: Market research; 1110: Economic conditions & forecasts; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 279-286

Number of pages: 8

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600172

Document URL: http://search.proquest.com/docview/745600172?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 48 of 100

SECTION 6. BUSINESS- LEVEL STRATEGIES: FOCUS ON ORGANIZATION DEVELOPMENT, HUMAN RESOURCE DEVELOPMENT - Chapter 29. Treks'n Rapids: Identifying Motivational Factors for Adventure Sports

Author: Saxena, Kshitij; Dey, A K

ProQuest document link

Abstract:

Treks'n Rapids (http://www.treksnrapids.com/AboutUs.aspx), a leading adventure sports and human resource enrichment company founded in 2002, by management graduates, wanted to identify the main motivational factors attracting youth towards of the National Capital Region adventure sports. The objective was to improve the effectiveness of integrated marketing communications strategy. Adventure sports are categorized into four classes: Mountain Sports; Extreme Sports like Bungee Jumping, Free fall etc.; Rafting & Kayaking; Paragliding, Sky diving & Skiing. A total of fifteen motivational factors were identified with the help of literature review and an exploratory study. A questionnaire was created and sent to over 500 people online. Fifty-seven responses were received. These were analyzed using SPSS. Findings of this study will help the firm in developing an effective integrated marketing communication strategy by fine tuning messages in their communication. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Adventure sports have generated significant interest and following in recent years. The definition of what constitutes an adventure sport is fluid, as new sports are introduced on a regular basis; all adventure sports tend to produce a profound surge of excitement in participants (an "adrenalin rush"), even though the participants are at significant physical risks. As a general rule, an adventure sport will require participants to perform quickly, where the participant is subject to significant effects of gravity, or is exposed to special dangers while performing a stunt with limited, or no safety equipment. Another compelling distinction between the definition of conventional sports and adventure sports is the lesser importance in adventure sports of the classic pillars of physical fitness (endurance, muscle strength, speed, power, and flexibility). A successful adventure participant must build significant levels of all round fitness to participate in sports such as rock climbing, which involves every muscle in the body. That same fitness level, while useful, is not essential to participate in adventure sports such as sky diving or motocross. Adventure sports tend to place less emphasis on formal coaching and training, because of their appeal to individuals. It is both a hallmark and attraction of extreme sports, that a novice in a particular sport can participate very soon after being introduced to that activity. Another distinguishing feature regarding sports included in the adventure sports category, is the nature of equipment required by participants. Most of the equipment is relatively simple to operate, such as a skateboard, bungee cord, or wakeboard; in some sports, a simple piece of equipment is used in conjunction with a mechanized device, such as a tow boat, or other transportation.

Adventure sports are played in the air, along the surface of the earth, and on and below the surface of water. Within adventure sports classifications, activities can be further sub-divided into two groups: adventure sports that are inherently extreme in their execution, and those adventure sports that are made extreme by the adaptation of an additional feature. For this study, adventure sports are categorized into four classes: mountain sports; extreme sports like bungee jumping, free fall etc.; rafting & kayaking; paragliding, sky diving & skiing. Treks'n Rapids has been in the business of adventure sports for seven years, catering to different needs and aspirations of people by providing them the best of outdoor activities in India and abroad. But today, in times of recession, it faces major problems of understanding changing needs and desires. Today Treks'n Rapids faces stiff competition from other adventure sports firms. The challenge before the company is to attract more participants while keeping a tight control on costs. The dilemma facing the company is how to market adventure sports that would lead to increase in sales and customers, and at the same time, achieve it with limited resources of money and time. What attracts people to adventure sports? What motivates young adults to take up adventure sports? The company has to take a quick decision before it loses existing and new customers to competitors.

Treks'n Rapids reinvented its online approach a few years back and has been promoting the company in various categories such as:

1. CORPORATE EXPERIENTIAL LEARNING : OUTPERFORM: Learning by doing, high impact, innovative outbound training programmes at self owned and third party campuses, across India and internationally. Top grade and highly experienced in house faculty and proprietary modules. http://www.outperform.in

2. OUTDOOR LEADERSHIP PROGRAMMES FOR CHILDREN: CHIPMUNKS: Confident ever after. Out-of-the-box, innovative and confidence building summer camps and customized programmes for children. http://www.chipmunks.in

3. ADVENTURE GEAR: HUCKFINN: An initiative of Treks'n Rapids that will manufacture and deliver adventure sports equipment at a very low price meeting international standards. Currently, the range will include: white water rafting equipment, trekking & camping gear, climbing gear, aero sports equipment and specialty gears such as artificial rock climbing walls & ceramic holds, zorb, all terrain vehicles, etc. Visit online store: http://www.huckfinn.in

4. CERTIFICATE COURSES IN ADVENTURE SPORTS :TNR ADVENTURE ACADEMY: Short term certificate programmes in: rock climbing, survival techniques & leave no trace, paragliding, scuba diving

5. COMMUNITY BUILDING INITIATIVE: ADVENTURE BUG CLUB: http://adventurebug.treksnrapids.com

NEED FOR THE STUDY AT TREK'S & RAPIDS

In general, motivation is the need that drives an individual to act in a certain way to achieve the desired satisfaction. In particular, many different reasons and motivational factors compel people to take to adventure sports. These forces are perceived as being able to decrease tension towards adventure sports, felt by an individual. The reduced state of tension then gives way to the necessity that encourages an action or attitude. Although the decision to satisfy needs may rely on other psychological variables, in reality, all human behavior is motivated. Motivations can be the result of internal and external stimuli. Internal stimuli arise from personal needs that can be physiological, social, egocentric, safety and self-actualization. External stimuli result from publicity and promotion. Motivations around adventure sports can be personal such as building confidence, personality development, sense of achievement, status, self-belief and help in goal setting. Motivations could also be due to the characteristics of adventure sports encompassing: thrill, challenge, fun, toughness and zeal required. Based on intrinsic and extrinsic motivations, the participants in adventure sports builds their perceptions. Perceptions can be different from the true attributes of the sport, depending on how the individual receives and processes information. In other words, perceptions focus on the attributes of products that affect behavior and not on the real attributes of products. Perceptions are a cognitive measure of adventure sports value. This value represents the opportunity cost of the product (value for money), which means that perceptions are formed based on a cost benefit assessment. Perception of an adventure sport may be analysed from a cognitive, or behavioral perspective. Perceptions are of several types: they can have a cognitive component (which results from the evaluation of adventure sport attributes) and a personal component (that depends on how the individual intends to perceive an adventure sport). Treks'n Rapids wanted to identify the main motivational factors of attraction towards adventure sports among youths (the largest consumer segment) of the National Capital Region. The objective was to improve the effectiveness of integrated marketing communications strategy.

STATEMENT AND IMPORTANCE OF THE PROBLEM

Treks'n Rapids has been spending large amounts of money to set up new facilities for adventure sports in India. Thus it is important to plan these expenditures well, as per the requirements of customers and also to promote them effectively. It is a step in delivering products and services better suited to customer needs. Further, in the competitive and growing sector of adventure sports in India, it becomes necessary to develop and innovate to stay ahead of others and competition. Also, as the company grows and matures, it is looking to establish its unique identity in adventure sports which is increasingly recognized and focused. Under the heat of intense competition from InMe (http://www.inme.in/) type of firms in the organized sector, and many competitors from the unorganized sector, Treks'n Rapids has increased its marketing spends. But increasing promotion expenditure is not the solution; the firm must understand what to say (message content and structure) to the target market segment, and how to reach out (media) cost effectively so that more adventure sport enthusiasts get attracted to Treks'n Rapids.Through this study, the firm wanted to identify the motivating factors for adventure sports among youths (between 18 to 35 years of age - considered to be the largest segment for adventure sports) residing in the National Capital Region. This would help them in enhancing the effectiveness of their communication strategy.

PROBLEMS AND ISSUES

The scope of this study includes finding answers to the following questions among young (between the age group of 18 to 35) male and female enthusiasts of adventure sports:

1. What are the motivating factors that attract participants to adventure sports?

2. Do different types of sports have significantly different pull factors?

3. Do personal characteristics of participants affect the level of motivation?

4. Is the motivation level influenced by the characteristics of the sport?

5. Based on identified motivating factors, can the population be segregated between male and female?

6. Can we identify high spenders and low spenders based on the identified motivating factors?

METHODOLOGY

To capture perceptions of youth, a questionnaire (refer Exhibit A) was designed and tested with twenty respondents and all problems encountered were removed.

Perceptions of respondents were captured on a seven point Likert Scale - with 1 being low and 7 being high. The questionnaire captured perceptions of respondents for adventure sports as a whole (refer question number 10 in Exhibit A) as well as separately for each of the four types of sports viz., mountain sports; extreme sports; rafting & kayaking; paragliding, sky diving & skiing (refer question numbers 12, 14, 16 and 18). Whether the respondent was aware about a particular type of sport or not was checked by screening questions (refer question numbers 11, 13, 15 and 17). For a particular sport, responses of only those people were analysed who were aware of the sport.

The questionnaire was designed in Google docs where links were posted to various mails and forums for review by people and filling up. It was put with a 7 day window period and after that responses were analysed. The online survey removes surveyor bias. Another advantage is that the data can be directly fed into excel sheet for analyses. Online survey also ensures random sampling. The link for the questionnaire was mailed to about 500 people out of whom 57 relevant (from youth) responses were obtained.

DATA ANALYSES

The motivational factors identified through exploratory studies are:

RELIABILITY TEST (T TEST) FOR EACH QUESTION

This test helps in determining whether a question is well understood and is able to distinguish between two classes of respondents: one who wish to 'Rate High' and the other who wish to 'Rate Low'. For such questions, the null hypothesis of a two tailed t-test should get rejected when applied to the test, if there is any significant difference between the mean responses of the top quartile and the bottom quartile of respondents in an ordered list. The null hypothesis for each question in the questionnaire was rejected at 0.05 level of significance. Hence analyses were carried out with all the questions.

RELIABILITY OF DATA CAPTURED

Summated scales are often used in survey instruments to probe underlying constructs that the researcher wants to measure. These may consist of indexed responses to dichotomous or multi-point questions, which are later summed to arrive at a resultant score associated with a particular question. The question of reliability arises as the function of scales is stretched to encompass the realm of prediction. One of the most popular reliability statistics in use today is Cronbach's Alpha. It determines the internal consistency, or average correlation, of items in a survey instrument to gauge its reliability.

The following table (Table 2) shows the number of respondents obtained for each type of sports and for adventure sport as a whole. Cronbach Alphas in all five cases are more than 0.874 indicating that reliability is high.

Validity Test for the Questionnaire

Analyses was carried out for each of the four types of sports. In Factor Analysis only two composite variables (dimensions) were extracted. The alignments of fifteen variables were noted, and these were compared with the composite variables extracted for the combined responses of all 57 respondents to question number 10. These five alignments were found to be highly consistent (See Table 3). This establishes the validity of the questionnaire.

KMO and Bartlett's Test of Sphericity

In each case, KMO was found to be more than 0.7 and the null hypothesis for Bartlett's test is rejected. This implies that the observed correlation matrix in each case is significantly (at 0.05 level of significance) different than an identity matrix. Hence, data reduction can be carried out.

Factor Analysis and Total Variance Explained

In each of the five cases (adventure, mountain, kayaking, extreme and paragliding) two factors were extracted. The total variance explained was more than 56 percent in each case (Refer Table 3).

The rotated component matrix of factor analysis as applied to question number 10 is reproduced in Table 4:

The composite variables as indicated by the two dimensions (Fig. 1) have been labeled as:

1. Characteristics of the self, like: building confidence, personality development, sense of achievement, status, self-belief and help in goal setting

2. Characteristics of the adventure sports encompassing: thrill, challenge, fun, toughness and zeal required

Based on the identified factors, the participants were successfully separated on the basis of two separate categorical variables namely, gender and spending patterns of participants. In the analysis over 73 percent in case of gender (77 percent in case of spending) of original grouped cases have been correctly classified.

CONCLUSION

This study has brought out that adventure sport enthusiasts are concerned about two factors:

1. They feel that participation in adventure sports will help in building confidence; developing personality; enjoying a sense of achievement; displaying status; developing increased self-belief and in goal setting.

2. They expect that adventure sports should provide thrills, challenges and fun. It should pose tough situations and should require high levels of enthusiasm for participation.

Accordingly, in order to attract participants, the firm Treks'n Rapids should design communication messages highlighting these two aspects.

LIMITATIONS

The respondents are residents of the NCR region only. This study needs to be replicated in other areas to increase external validity. The target segment selected was only youth. However, people of other age groups also get attracted to adventure sports. Their motivation factors also need to be studied. Further, it is felt that motivation factors may differ between male and female respondents.

Subject: Studies; Integrated marketing; Outdoor activities; Adventure

Location: India

Company / organization: Name: Treks N Rapids Pvt Ltd; NAICS: 713990

Classification: 9179: Asia & the Pacific; 8307: Arts, entertainment & recreation; 7000: Marketing; 9130: Experiment/theoretical treatment

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 289-301

Number of pages: 13

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600149

Document URL: http://search.proquest.com/docview/745600149?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 49 of 100

SECTION 6. BUSINESS- LEVEL STRATEGIES: FOCUS ON ORGANIZATION DEVELOPMENT, HUMAN RESOURCE DEVELOPMENT - Chapter 30. The Innovative Technique at Thomson

Author: Agarwal, Raveesh; Chaudhary, Mona; Dixit, Suryakant

ProQuest document link

Abstract:

This case focuses on the new initiative taken by Thomson Press India Ltd. to maintain its leadership in the market. This case describes a new initiative - "Vaarta - at Employee Engagement Survey", which will facilitate the organization through engagement of its employees into a high performance workforce during recession times. The objective of Vaarta is to create a forum for employees to give systematic feedback on how "immediate officer/manager" can sustain and enhance passion and commitment. The Vaarta survey is specially designed to help officers and managers to gain useful insights, on how their team members are being impacted by the way they engage with their team, and then to take specific actions to address areas of concern, as well as to sustain the strengths of employees. Equally, senior leadership will get insights on application of policy of the organization to enhance their motivation and drive. The objective of writing this case is to gain insights into human resource practices being adopted. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

As a leader in the competitive printing industry, Thomson believes its associates are the greatest assets and knows that its success rests on engaging those associates. With a vision to maintain and to be acknowledged a leader in printing through consistent improvement in quality, Thomson Press India Ltd. was established in 1967 by Lord Thomson of Fleet. He was the founder of Thomson Corporation which is one of the biggest publishers in the world. The main thrust of the company was printing of children's books for export and the distribution of publications of a large number of overseas publishers. Now Thomson Press not only prints a number of prestigious magazines for various publishing houses, but also prints high quality commercial POS items and books for the domestic and export markets. Its product range covers designing, copy editing, typesetting, high quality scanning and image manipulation, sheet fed offset printing, heatset and coldset web offset printing, automated binding, finishing, distribution and mailing services etc that meet international standards and varied requirements of its esteemed customers. It is one of the largest integrated data processing and printing service providers in South Asia with a mission to recognize the customer's right to quality, services, timely delivery and cost, to ensure maximum satisfaction to clients, to continue maintaining ethical practices, legal, social, personal conscience framework, to encourage individual growth to the fullest potential, to maintain a high degree of efficiency and attain international standards and quality through people and technology.

Thomson Press has been in international business for over two decades and in a focused manner for the last 15 years. In line with becoming a global player, Thomson has made substantial investments. Essential facilities and equipment in plant make it a cost efficient solution provider that matches the best in the world and acknowledged by customers abroad. Its unique one-stop structure and unique product quality has always given it an edge over others. It pledges to achieve customer satisfaction by continual improvement in its processes and excellence in quality. Standards have been set as per the ISO 9001-2000 International Quality System and has been certified from BSI India Pvt. Ltd to provide quality assurance. The standard is being revised from time to time whenever there is some improvement or modification in the system. Periodical audit of the system standard is being conducted to check compliance with the standard. Every customer complaint is being thoroughly investigated by the company for its origin and reason. Necessary corrective and preventive action is being taken in consultation with the concerned departments.

Thomson understands the importance of its employees and customer satisfaction. It is an organization's employees who influence the behavior and attitudes of customers, and it is customers who drive an organization's profitability by purchasing and use of its products. One of it core values is if we take care of our employees, they will take care of our customers. It is nurturing and educating the youth to become technocrats through the Thomson School of Printing. The 'training school' was started in 1995 with the aim to produce printing professionals to meet requirements of quality manpower. Thomson conducts regular in-house training programs for technological improvement; motivate their workforce for excellent standards in work procedures through Kaizen to deploying specific, measurable and time-bound objectives in all processes in various functions. Thomson has taken great care to build and maintain a company culture which values and respects staff as individuals, giving everyone a sense of involvement in the process.

Thomson's senior managers operate an open door policy and understand that an organization's best source of competitive advantage is its people. Strategies, business models, products, and services can all be copied by competitors. Talented people, by contrast, can not be duplicated and will always set the organization apart. Achieving a competitive advantage through people requires that the organization succeed in attracting and retaining talent. In Thomson's view, engaging with employees in such an open and transparent manner maintains employee retention at high levels. The average worker stays with the company for a lifetime. Like most other organizations, Thomson was well aware that a drop in engagement at the front line is likely to have an impact on customer service. So the company has taken a number of initiatives to place new performance management systems, greater learning and development opportunities, new management development programmes, employee recognition schemes, and flexible working practices to motivate employees and build loyalty. Employees are offered challenging work and the autonomy and flexibility to improve the services they deliver. Staff is trusted to manage their time effectively. However, Thomson ensures that all staff understands the organization's values and standards, and that they have clarity on what is expected of them. Staff is given the information they need to do their jobs well. The results are found satisfactory. Engagement levels and profitability have improved very significantly and it has successfully completed huge business integration.

Since the business environment requires keeping improving day by day to face many challenges, inevitably, challenges have had to be faced. The challenges occurred in 2008-09 due to recession all over the world. Thomson management agreed that it was clearly time for change and that the only effective way to make that work was by getting everyone in the organization involved. The key was to engage with staff and to ensure that all staff policies, including those surrounding performance management, were seen to be fair and consistently applied to all. Workshops were held where every team and each team leader was given an opportunity to express their views about how improvements could be made and how teams should be managed. Employee engagement was a new way of working that was endorsed by the staff. Employee engagement approaches can help companies and organizations deal with the challenges of recession because by establishing trust, they can unlock more of the knowledge and commitment of individual employees.

As we continue to ride out the current economic recession, employee engagement has become a critical business issue for the organization. Bottom-line effects are disenchanted staff and decreased productivity. It is a tough time for the company to enhance its position as leader in the printing industry and stay ahead of competition. It is clear that with large cost savings to be made in the organization, there is an ongoing challenge to motivate people, even though some tough funding decisions may have to be made. Continuing to deliver good services, in changing times with less money is a concern, which means that clear messages, open culture and strong leadership must remain a high priority. However, its successful approach to sharing the responsibility for engagement across leadership, business operations, human resources, communications and marketing teams, is something Thomson is extremely proud of, and believes that it will pay real dividends in tough times. Despite the improvements facilitated by Thomson, it recognizes that there is still more to do. Key challenges include identifying areas for improvement and engaging each and every employee of the organization at an individual in this recessionary environment along with taking innovative and inclusive action so that everyone benefits - the business, the environment, and the workforce. At the end of each working day, a high level of employee engagement can be sustained. The organization identified three areas for improvement: customer satisfaction, business performance and organizational culture to meet a number of challenges in its market, including changing customer needs. The company began by addressing organizational culture, recognizing the importance of ensuring all of its employees were engaged. The organization believes that high levels of employee engagement would support its mission to be recognized both internally and externally as an outstanding, responsible employer and continue to be the industry leader.

In order to realize these objectives, Thomson embarked on a new initiative - Vaarta - an employee engagement survey which facilitates the organization to sustain its leadership through engagement of its employees into a high performance workforce during recession times. Engaged employees have a greater sense of well-being than those who are less engaged. They are more likely to be satisfied with their work, less likely to be sick and less likely to leave the organization. The mammoth task involved several months of study to design a perfect framework for an employee engagement programme. This led to planning, design and development of Vaarta communicating core elements and a set of core competencies. The objective of Vaarta is to create a forum for the employees to give systematic feedback on how "immediate officer/manager" can sustain and enhance passion and commitment to the organization. The Vaarta survey is specially designed to help officers and managers to gain useful insights, on how their team members are being impacted by the way they engage with their team, and then to take specific actions to address areas of concern, as well as to sustain the strengths of employee. Equally, senior leadership will get insights on application of policy of the organization to enhance their motivation and drive. It covers all employees in all departments of the organization.

"One size does not fit all" when it comes to the steps that employers could take with regard to employee engagement, Thomson might want to focus on specific drivers of engagement for employees in a particular age/generational groups and different drivers for those in other groups. To ensure the objectivity of this process and maintain the confidentiality of responses, Thomson appointed "hrcraft business consultancy", an external agency which specializes in conducting such surveys and implementation plans for reputed organizations such as Pespsico, Escorts, IndiGo Airlines, Ceat Tyres etc. Thomson chose hrcraft because of its track record in helping staff at all levels understand and accept new initiatives which helps companies gain insights into the views of their critical stakeholders - employees, senior leaders and customers - and use these insights to shape people strategies and programs that align organizational culture, employee behavior, customer behavior and financial results. hrcraft administers an independent survey for Thomson and no Thomson Press employee was involved in conducting Vaarta. It allows staff to be more open and honest than in an in-house survey. Each employee of Thomson was given a Vaarta questionnaire, informational brochure and newsletter which included stories on the program by hrcraft. The Vaarta survey comprises of 58 questions which cover many recognized drivers of commitment across five dimensions addressing areas which are impacted by "immediate officer/manager" as well as by company policy and rules. Employees respond to these questions with "Strongly Disagree", "Disagree", "Neither Agree nor Disagree", "Agree", "Strongly Agree".

The surveys supported the drive to improve business strength and optimize levels of customer service by enabling the organization to assess its work culture, assess levels of employee engagement, identify areas of strengths and weaknesses, set new priorities for its people strategy and programmes etc. The main drivers of the Vaarta are age, health, training and development opportunities, access to flexibility, clarity of roles, supervisor support, organizational culture, organization communication etc. The vaarta also highlight issues like expectations from work, regular feedback from customers, expression of thoughts without fear, performance management system, balance between work and personal life, confidential treatment of feedback, etc. This employee survey covers all aspects of employee life including coworker relationships, promotion opportunities, public recognition of contribution, fair treatment by managers, respect for new ideas, involvement in decision making, etc.

SPECIFIC OBJECTIVES OF VAARTA

* To identify a more effective performance management system that is the cornerstone of engagement - from goal-setting to reward, recognition and incentive programs.

* To ensure that performance was evaluated consistently and fairly

* To find out the accountability of managers for their employees in the organization

* To empower staff to take greater responsibility for their own performance and development

* To create a sense of connectedness through communities of practice, cross functional teams, and by creating common work areas

* To recognize employees for their suggestions, employ group brainstorming and utilize group members to enhance the feeling of connectedness

* To create a sense of engagement that individuals are a part of a greater entity

* To rank cross-functional teams and councils as the most effective vehicle which helps employees to understand how their team and business unit's efforts contribute to corporate performance.

Surya, a human resources specialist who at the time of starting the survey in July- August 2009 was Thomson's human resource manager and his team was concerned about the feedback. Surya believed that the human resource department could not manufacture engagement, but it had a key role in helping to develop the kind of organizational culture where engagement could thrive, and ensuring that managers had the skills to make engagement a reality. It's about a shared way of working - a culture - that celebrated success, communicated effectively and explained the action plans. Although all the employees of Thomson were intrinsically linked, worked together to lift performance and have ownership of the process, a piecemeal approach would have ruined this initiative. It was essential to get everyone behind Vaarta from the beginning. It was something that Thomson was trying to achieve with this initiative. It was simple and involved a formal structure coupled with relevant content, enabled participants to really explore their own views on many areas - rather than have another set of 'How to Manage' rules and regulations to swallow. The complete the process of Vaarta was designed to encourage feedback, thus enabling Thomson to use the views of all those involved in this process. This meant that each employee had clearly understood the rationale behind vaarta even though this was difficult for all employees and in some cases, reduced attention by certain employees. Separately, Surya and his team also needed to secure the active participation of all employees in the survey to ensure that the business was 'right-sized' and 'right-costed' in light of the more difficult market conditions with focus on employee recognition in the organization. They knew that the ultimate goal of Vaarta was to obtain honest feedback from all participants that could be translated into action to achieve optimal organizational growth and development. To achieve this, participants must be confident of the process, and the organization must trust the results. Participants needed to know that the organization had a genuine interest in listening to their candid opinions, and they must be assured that their input was kept confidential. Another cause for concern was the lack of support people felt from their team members. Other challenges in front of his team was to educate beneficiaries on the importance of employee engagement survey, motivate beneficiaries to give true responses for Vaarta to form a very good relationship with seniors and their team members. Since attitudes to senior managers are often regarded as quite negative by most of the employees in general, they encountered challenges in administration and implementation. The so-called 'death of deference' had impacted on the employer-employee relationship. The young generation had high expectations about what work would offer them in terms of self-fulfillment. However these higher expectations were not limited to one particular demographic. Increasingly employees expected to be treated as human beings with rights and responsibilities. For a high quality of working life it did not matter so much what the business was, but how the people in that business behaved. In order for the participants to willingly engage in the employee survey process, Surya and his team demonstrated sincere plans for engaging the hearts and minds of employees at all levels to get honest feedback.

This is widely regarded in Thomson as a successful employee engagement exercise during the most difficult trading environment that the company has ever seen. Vaarta is a real achievement for Thompson which shows that there's something real going on as 'Thompson invests in people' mantra. It's about fairness, treating people as individuals, about giving individual sense of belongingness to Thomson. Thomson understands that Vaarta is a process not an event, and simply doing a survey and publishing the results is not the same as an engagement strategy for an organization. The engagement strategy is a catalyst for re-building trust and confidence between individuals, their line managers and the organization. The most important thing is to arrive at a shared definition in the context of the business, and translate it into an action plan. An engaged employee is aware of the business context, and works with colleagues to improve performance within the job for the benefit of the organization. Thomson believes that by gathering and analyzing engagement data, they would be able to pinpoint exactly where their imperfections can be identified. Because the program is so new, reliable outcome data is not yet available. In a few months, Thomson Press expects that it will get feedback from hrcraft and employee feedback will be positive. The way "hrcraft" has communicated and administered Vaarta, Thomson opines that it is easy to understand, is straightforward, and is actionable. Analysis of the survey results will provide insights that will enable Thomson to focus its people strategy on delivering the key objectives of its business transformation. This will make a significant contribution to improvements in levels of customer satisfaction and business growth. It will help individual officers and managers in identifying specific and positive action steps towards engaging their team and thereby, enhancing and sustaining business performance.

It is important to act quickly on survey results so that employees will know that senior management is committed to making positive change and action will occur while it is still relevant. If a company waits a year to take action, by that time some employee perceptions and attitudes are bound to have changed and thus the intervention will not be as effective as it would have been had it occurred within weeks of obtaining survey results.

SEVERAL ISSUES ARE OPEN FOR DISCUSSION.

Can Vaarta be considered an ideally structured exercise towards employee engagement?

Are there pre-requites to make it more meaningful?

What should Thomson do once the survey results are known?

Will the transparent publicity create complexes in some sections of employees?1

Subject: Printing industry; Case studies; Initiatives; Human resource management; Competitive advantage

Location: India

Company / organization: Name: Thomson Press India Ltd; NAICS: 333293

Classification: 6100: Human resource planning; 9110: Company specific; 8690: Publishing industry; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 302-308

Number of pages: 7

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745600065

Document URL: http://search.proquest.com/docview/745600065?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 50 of 100

SECTION 6. BUSINESS- LEVEL STRATEGIES: FOCUS ON ORGANIZATION DEVELOPMENT, HUMAN RESOURCE DEVELOPMENT - Chapter 31. From Policeman to Consultant: Transforming the HR Function in Federal Government

Author: Pagliarini, Raymond; Koerner, Ursula

ProQuest document link

Abstract:

It would not be uncommon to find the following goal assigned to most Human Resources (HR) organizations throughout the private and federal sectors: To create a human resources environment that fulfills the organization's human capital needs for the 21st Century. Never has there been such a challenging goal. There are hundreds of studies and documents written and published on the concept of organizational change. This case study tells the story of a cultural transformation, and thoughtful reflection, on the importance of delivering strategic human capital management services, and the principles of leadership as they relate to cultural and organizational change. Although the study discusses a number of change management theories and practices that were studied, none were more crucial than those which focused on a comprehensive analysis of the organization's culture. We relate a leadership story of how this cultural transformation occurred and the lessons learned. [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

"The bottom line for leaders is that if they do not become conscious of the cultures in which they are embedded, those cultures will manage them." (Schein, 1992, p.15).

The field of Human Resources (HR) is characterized by providing services to meet customers' needs, while remaining compliant with laws enacted by the Federal Government that are specific to the human resources industry. This often creates a disconnect between the HR provider and the customer, one party trying to be compliant while satisfying the customer's needs, and the other party trying to get a need met. Add to that the various policies and procedures specific to a Federal Government agency, and HR becomes the "law enforcer" where it is easier to say "no" than to interpret and apply various rules, policies, and regulations.

The Agency in this study has approximately 10,000 employees and offices in more than 60 foreign countries. Prior to the recent selection of the new HR Director, the HR function was a well-oiled and efficiently operating machine. There was a specific law, rule, policy, or regulation that covered every aspect of HR functioning, from recruiting to retirement. The former HR Director designed all of the policies and standards of operations to her specifications, and she increased the existing HR workforce by 23 percent. The HR staff was well trained and accustomed to following procedures that were embedded deeply into the culture of the organization. There was little need for increased knowledge, or new skills, because there was no variation to the process. If a customer needed assistance, they needed to complete a detailed questionnaire before they could be helped. This was the "new" process implemented as a change intervention.

THE NEED FOR CHANGE

"Insanity: doing the same thing over and over again and expecting different results." Albert Einstein

The Federal Government faces continual change requiring agencies to adapt to an increasing array of evolving mandates, policies, priorities, and business processes. In an effort to adapt to, and resolve this emergent need, a new HR leader was appointed to restore the regulatory technical competencies, and provide direction so desperately needed by the HR organization. This new HR Director, selected for her extremely conservative interpretation of Federal HR regulations, took every opportunity to transform the HR organization by filling key leadership positions with individuals who shared the same conservative approach to Federal HR determinations.

"The law of unintended consequences (also called the "law of unforeseen consequences") states that any purposeful action will produce some unanticipated or unintended consequences."1 However, the unintended consequences in this case study resulted in building a culture so hunkered down in the Federal regulatory that the organization failed to recognize the main purpose of its existence - to support the organization's mission and its people. Over the course of a five year period, the internal HR culture continued to have a significantly negative impact on the delivery of HR services to their 10,000 customers worldwide. In fact, the creation of a highly conservative culture directed on the Federal regulatory HR requirements further alienated the HR workforce from its customers. The notion of a consultative partnership between HR and its customers was not a plausible consideration. Preventing a partnership was this newly formed culture.

The culture of an organization must be mastered by the leaders and it is the leader's profound awareness of their organizations culture that forms the foundation of successful change. It has been widely discussed and proven that the culture of an organization is directly related to the success or failure of that organization. In his book, Schein (1992) states:

"When one brings culture to the level of the organization and even down to groups within the organization, one can see more clearly how it is created, embedded, developed, and ultimately manipulated, managed, and changed. These dynamic processes of culture creation and management are the essence of leadership and make one realize that leadership and culture are two sides of the same coin." (Schein, 1992, p.1).

Organizations are known for creating a culture of group think, and in 2003 the previous HR Director began to create a culture of group think centered on an extremely conservative application of Federal HR laws, regulations, rules and processes. At the time, this particular culture was considered critical to ensure regulatory compliance in the delivery of Federal HR services to the organization and its workforce.

Change is occurring rapidly and organizations are exposed to many new ideas, problems and challenges that may be years ahead of other organizations. Today's customer needs are more complex. Managers are facing rapid changes in technology, a shortage of qualified workers, a diverse workforce and economic pressures. Customers of this organization were no exception. The HR customer dealing with these challenges, and the everyday challenges of the work environment finds little time to deal with HR issues. They need a professional consultant, knowledgeable enough to guide them through unique situations and offer advice on the best way to proceed. No longer can the customers' demands be simply accommodated by using an outdated method.

The HR division demonstrated a decline in the application of HR technical skills. Comprised of core federal HR laws, rules and regulations, these highly specialized skills were crucial to the effective functioning of HR. HR professionals were experienced and knowledgeable in the HR field and previously demonstrated these learned HR competencies. As a result, the organization faltered in appropriately applying technical accuracy and compliance to federal HR regulations. This lack of regulatory compliance resulted in a decline in the delivery of accurate HR services, leaving the customer frustrated and at a loss.

The parent organization's leadership acted quickly to alter HR's direction by hiring a new HR leader and to rebuild HR technical competencies in order to provide a solid HR regulatory foundation. This was essential to restore a sense of professionalism and integrity among the HR community and its customers, and to restore credibility to HR. However, unless the change initiative is constantly monitored and evaluated, an organization is likely to experience unintended consequences. As was the case in this situation, whereby the HR leader failed to monitor and recognize the results of developing a conservative HR technical application culture.

The parent organization took advantage of another opportunity and hired another new HR leader who after careful analysis of the HR division's existing culture recognized the importance of creating a new HR culture. This intervention implemented a holistic approach that created a culture within the HR organization that allowed the HR professional to provide exceptional delivery of HR services and a transformation of the HR function.

THE IDENTITY THREAT

With the recent internal changes, and now another new Director, the HR team was being tested and their confidence shaken, as they struggled to keep up with the changing demands of their customers in a rapidly changing world. A change in the method and focus in which HR services were delivered was considered by the HR staff as a threat to their individual and collective identities. This identity threat served as the greatest obstacle to making the transformation from the regulatory and traditional HR services to the strategic consultative HR services. There are several circumstances and events that have contributed to the HR team's enactment of making sense of their professional identity Morgan (1997).

First and foremost, is the fact that is embedded in their mindset is the regulatory and traditional methods utilized to deliver transactional HR services. These traditional mechanical processes provided a deep understanding and appreciation of who they are. It is important to note that the majority of HR employees never worked in any environment other than HR. This lack of exposure to other functional areas of an organization limits their ability to draw upon other professional experiences in order to think strategically. In addition, only one out of ten have college degrees, which hampers their ability to fully analyze the complexities encompassing the current HR environment. Conversely, not only have they been able to retain their positions, they have actually progressed in their careers. A successful employee was rewarded for adapting to the rigid culture. They only had to remain focused on the routine mechanical day to day transactional processes and hide behind the federal regulatory laws and rules associated with HR functions. Many were promoted once they mastered their specific HR operational task.

In the past, only senior HR specialists, supervisors and managers were responsible for assignments requiring indepth HR analysis in such consultative functional areas such as: reorganizations, organizational problem solving, coaching, and complex decision making. It is important to note that during this period, HR staff members were very content with their identity and most important, their integrity. They considered themselves to be valued because they were contributing to the overall effectiveness of the HR mission. In fact, by implementing a policing culture, the HR team misinterpreted their controlling posture as making meaningful contributions to the agency. Their professional culture - their surrounding artifacts, espoused values, and basic assumptions (Schein, 1992) created their identity and integrity as a valued contributing member of the organization, who were proficient in performing their job responsibilities.

With the "threat" of a change initiative, it was very apparent that the fear of losing their identities was a major challenge for the HR team. In addition, the fear of failure based on a lack of self confidence was another concern preventing the HR employees from venturing forward to perform more HR functions that may require new processes to learn, or new ways of thinking. The uncertainty of the unknown further shook the self confidence of the employees.

It is important to acknowledge these fears as very real and directly related to the culture which they have enacted [Morgan (1997)]. Although HR employees had considerable influence on the enactment of their culture, much of the cultural foundation was set by all that comprised the organization itself. Therefore, one should recognize that it is not the sole fault of the HR staff that they were unable to think and act strategically in order to serve as consultants.

In the Federal Government, the evolution of HR being part of the "executive team" is still very new. To get a seat at the executive table is still considered an accomplishment in the HR field. It wasn't very long ago, that HR personnel were actually trained and developed to work in very regulatory/traditional/transactional roles. HR specialists were required to work in very structured orderly regulatory environments, and were encouraged to view their work as extremely regulatory, mechanical, and precise. Every action accomplished had a very specific impact on the other, or next set of actions. In some cases, a very large HR office resembled the assembly line in a production factory. HR offices were organized and operated according to the mission that was once bestowed upon them. Up until quite recently, HR offices were seen as bureaucratic, over regulated, inflexible, and simply a paper processing institution. Even today, cartoons and pictorials depict HR offices as structures which contain mounds of paper and documents that contain regulations and laws. The more HR employees were praised for their role as regulatory mechanical entities, the more they perfected their regulatory interpretations, mechanical techniques and solidified their policing identities. The illustration of the office staff as a machine was once so predominant that the previous HR Director, in her departing speech, told the employees that the one thing that she most proud of was that "She had created and was leaving behind a well oiled hard working HR regulatory machine". The majority of the staff was extremely happy as those words served to validate the essence of their identity. Frederick Taylor would have been very proud.

THE ORGANIZATION AS A METAPHOR

We purposefully compare the organization to another entity by means of a metaphor to better understand the organization to be transformed. Morgan (1997) describes an organization as Plato's Cave. This metaphor helps to provide an understanding of the culture of the HR organization - a historical base. The powerful perspectives that Morgan provides in his discussion of the Plato's Cave metaphor, can be directly related to the perspectives that we discussed earlier in the study. There are many powerful analogies that we can apply to this particular situation regarding transforming the office. In addition, the theories and perspectives associated with this metaphor have a direct impact on the success or failure of the HR transition initiative. This allegory provides an outstanding summarization of the major challenges transforming the HR staff. Morgan (1997) reminds us that:

The idea of a psychic prison was first explored in Plato's The Republic in the famous allegory of the cave where Socrates addresses the relations among appearance, reality, and knowledge (Morgan, 1997, p.215).

We can easily relate the majority of the HR staff personnel to the subjects chained within Plato's Cave. In the cave, the chains prevent the people from moving. Within the "HR Cave" the chains represent the majority of the staff's self imposed limitations. These limitations can be expressed in terms of their limited educational levels, limited exposure to other parts of the parent organization, or lack of work experience in any other Federal agency. After concluding that these limitations are self imposed, we note the following comment from Morgan to be extremely relative to the HR staff situation.

"Human beings have a knack for getting trapped in webs of their own creation." (Morgan, 1997, p.215).

The fire blazing from outside Plato's Cave symbolizes the need for change, and yet the HR staff can not see the fire, or the need to change. The HR staff only sees what is directly in front of them, their own shadows and other objects. For the HR staff, the time spent in their edition of the "HR Cave" has created a situation whereby they are incapable of seeing what lies directly in front of them. Morgan (1997) summarized this particular situation well by telling us that:

"Truth and reality for the prisoners rest in this shadowy world because they have no knowledge of any other." (Morgan, 1997, p.215).

Morgan (1997) continues his discussion of Plato's Cave with a description of Socrates' theories of what happens if someone were to leave the cave, gain an understanding of the external environment and return to the cave to share this new knowledge. One would think that the HR staff would make a gradual transition by changing their norms, behaviors, values and basic assumptions to meet the demands of their customers. However, if the staff fails to gain the knowledge that a transition requires-change will not occur. In his further discussions of the individual attempting to share his new found knowledge with his fellow cave members Morgan (1997) reminds us that:

"Moreover, as the person espousing the new knowledge would now no longer be able to function with conviction in relation to the shadows, his fellow inmates would likely view the world outside as a dangerous place, something to be avoided. This experience could actually lead them to tighten their grips on their familiar way of seeing." (Morgan, 1997, p.216).

This HR staff was wedged into their desire to hold on to the traditional-transactional delivery of HR services. HR staff members have tightened their grip on their comfortable delivery of traditional-transactional HR services. They have recognized that the new Director has "left the cave" and that the information he returned with, is threatening to their world. The HR staff is holding on to the old traditional method of delivering HR services in hopes that they can avoid, or diminish the need to change.

Contained within his discussion, Morgan (1997) talks about the "trap of favored way of thinking". This discussion can be directly applied to the transition that the staff and Director were confronting. The author tells us that there have been instances where organizations, based on particular methodology, contributed to their own high success rate. However, these same organizations became "trapped" with the taste of success, and by the way of doing business and lost sight of the external factors confronting them. Without a sense of their external environment they begin to decline and find themselves in a fight for survival. Morgan (1997), in sharing an excerpt from Danny Miller's book the Icarus Paradox, tells the story of Icarus, who using the power of his artificial wax wings fell to his death as he approached the heat of the sun.

In the past, HR staff experienced significant success with regard to the delivery of HR services. In fact, in 1999, the staff was deemed the "best in class" by the parent organization, based on a Department wide HR customer service survey. In 2002, the same staff ranked number eight out of nine in providing world class HR customer service. In just three short years, the success of the office declined significantly. The HR staff, with their inability to view and understand their customers needs, are collectively plunging HR organizations to death. The staff wants to hold on to the processes, procedures, behaviors and belief system that once served as their "waxed wings".

Another remarkable theory that can be directly applied to the reason the HR staff is reluctant to move toward a more strategic method of delivering HR services is what Morgan (1997) talks about in a section called "organization anxiety." In discussing the work of Wilfred Bion, Morgan (1997) suggests that adults will develop defense mechanisms to cope with anxiety. We especially believe this to be the case when the HR staff's individual, or collective identity is at risk of being changed or abolished.

"Wilfred Bion has shown that groups often regress to childhood patterns of behavior to protect themselves from uncomfortable aspects of the real world. When a group is fully engaged with a task, its energies tend to be occupied and directed in ways that keep the group in touch with an external reality of some kind. However, when problems that challenge the group's functioning arise, the group tends to withdraw its energies from task performance and use them to defend itself against the anxieties associated with the new situation. Sometimes the group projects its energies onto an attractive symbol of the past, celebrating the way things used to be instead of coping with the current reality." (Morgan, 1997, p. 231).

With regard to the HR staff, we discovered a coping/defense mechanism apparent in dealing with their fear and anxiety, to turn their attention to the work that they recognize as having given them a sense of comfort, value and success. The limited and often times distorted knowledge embraced by the HR staff regarding a shift in the delivery of HR services, has caused them to become anxious apropos to the perceived threat to their professional identity as they search for an "attractive symbol of the past" Morgan (1997). In searching for a method to protect their identity, they have discovered that hanging on to the functions related to traditional HR services provides them an opportunity to find comfort in the way things used to be.

The following quote from Morgan (1997) perfectly summarizes the ease with which the current culture of the HR staff relates to the contents of Morgan's psychic prison metaphor.

"Favored ways of thinking and acting become traps that confine individuals within socially connected constricted worlds and prevent the emergence of other worlds." (Morgan, 1997, p.219).

The office has thus far failed to respond to changes in the internal and external environment and therefore is facing difficulties meeting demands of its customers.

As previously stated, we determined that one of the major obstacles facing the HR transition, was the staff's inability to clearly recognize the components which comprise their external world, thus inhibiting their ability to make sense of their total environment. Morgan (1997) further states that organizations face issues with the outside world because it is not seen as part of the organization's environment. According to Morgan (1997), organizations actually believe they struggle with the uncertainties of the outside world.

This perfectly summarizes the situation in the HR office. It appears that the situation involving the HR staff is beginning to appear very cyclical. For example, the HR staff recognizes that winds of change are on them. As a result, they have a feeling of fear. As the HR staff begins to fear the unknown associated with the notion of change, they begin to grip onto well known individual and collective identities. The problem as noted by Morgan (1997) is that the identities created by the HR staff do not include relationships with their customers. The HR staff's determination to anchor themselves in this comfortable identity is what Morgan (1997) describes as an "egocentric organization". Morgan's (1997) description can be directly applied to the difficulty the HR staff experiences when attempting to make sense of their HR world.

THE TRANSFORMATION BEGINS

The intervention epitomized the importance of recognizing unintended consequences associated with organizational change, and the negative impact of such consequences on the organization and the people within it. Within 90 days of his appointment, the new HR Director began to assess the HR organization's culture, using both ethnographic and appreciative inquiry concepts. The ethnographic approach was used to give the HR Director an opportunity to observe how the organization's culture affected the overall behavior and workings of the HR staff.

The appreciative inquiry approach enabled the HR Director to focus on building from the past positive accomplishments, and the strengths of the HR community. This approach not only forced the focus on the many successes of the HR organization, it also provided a way to build on the past successful work of the organization, while moving forward. The action was first met with skepticism, since historical methods focus on weaknesses. However, many members of the HR team were able to celebrate their past experiences and to place them in the proper perspective. In their book, Thatchenkery and Chowdhry (2007) explain:

"Traditional applications of organizational change and knowledge sharing rely on finding and resolving problems. While this sort of deficit and critical thinking can be valuable in some contexts, it often leaves groups of people feeling frustrated, unsatisfied, and unappreciated." (Thatchenkery & Chowdhry, 2007, p.1).

This was a critical initiative for them to begin embracing another change initiative five years later.

The HR division experienced a significant decrease in the application of technical HR competencies among the workforce which resulted in a significant decline in delivering HR services throughout the parent organization. The organization's Administrator found it necessary to remove the HR Director and hire a new HR leader who could quickly rebuild solid HR technical competencies. One could categorize what happened as a significant organizational change that impacted its overall strategy for success. However, given that the parent organization, like most organizations, experiences change at an increasingly rapid rate, the strategy to create a highly technical and conservative HR workforce did not serve the organization well. In just five short years, the organization found it necessary to hire a new HR leader to transform the HR organization, to ensure that it brought the organization into the 21st century.

THE NEW DIRECTOR

A third HR Director was appointed, and this new Director assumed the responsibility of transforming the HR organization from a policing entity to a consulting managing partner. Specifically, the HR office (Office) was unable to fulfill the expectations and needs of its executives and managers (clients) in serving its role as strategic human resources consultants. The major contributing factor for this lack of progress is that HR staff, individually and collectively, is predisposed in their mindset that their work is based on a traditional, transactional and regulatory delivery of HR services. The regulatory and transactional functions associated with the HR environment includes: training, pay issues, position classification, policy development and audits and investigations, filling vacancies, recruiting, staffing, record processing, benefit processing, etc. These regulatory, traditional and transactional services are in part, customer centered and focused. However, as complexity continues to emerge at a rapid pace, executives and managers require other strategic HR services. Most of the organizations executives and managers, struggle with the complexities of their technical responsibilities, which leaves them with little or no time to focus on their administrative responsibilities, especially HR issues. Therefore, they expect the HR community to absorb the HR complexities and assist, if not solve, complex HR issues for them.

To be successful in serving organizational customers by incorporating a high level of HR functional analysis, the HR community will have to develop a strategic consultative thought process. In other words, the HR community will have to learn to think strategically and use a consultative approach. The daily interactions between the office and its customers provided sufficient evidence that the expectations of the customers are changing in a direction which required a move from the regulatory/traditional/transactional approach to a holistic and strategic method of delivering HR services. To further explain the difference between traditional/transactional HR services compared to a more strategic analysis associated with these services, following are three comparative examples: the first example describes the thought process regarding "Position Management"; the second example describes the functions of "Recruitment, Training, and Benefits"; and the third example identifies the "HR Customer".

The new HR Director concluded that there were two major obstacles blocking the HR team from making a shift to a holistic and strategic methodology of approaching their professional HR responsibilities. First, over the five years studied, HR personnel have only been trained, developed, encouraged and rewarded for a regulatory, traditional, transactional mindset. Second, for many of them, making this drastic change was a direct threat to their identity.

CREATING CHAOS

As part of the cultural analysis, the new Director identified interventions that could be acted on immediately. Through observations and a modified ethnographic study, research indicated that the internal customer, located in field offices around the world, wanted full line representation and a direct alliance with the HR Director. This customer group encompasses 50 percent of the workforce and customer base, and felt left out of significant communications and information coming from headquarters. In fact, this group was very vocal in suggesting that the previous HR Director should be replaced by someone from one of the field offices. The new Director, with the Administrator's approval, created an organizational realignment by appointing a field employee as a senior advisor.

The new Director developed a reorganization plan and presented it to key stakeholders which was well received and encouraged. He also convened an HR Leadership Conference with his direct reports offsite to be able to focus undistracted. The output of the meeting was the foundation for a strategic plan, identifying the organization's, strengths, weaknesses, opportunities and threats. The strategic plan produced a mission, vision and goals for the organization. The result was a leadership team fully engaged in the planning and creation of the organization's operations. A defining moment, and unintended consequence, occurred at the end of the first day of the meeting. Several members of the team confided to the meeting facilitator that they could not move forward as a team, unless the HR Director addressed the newly announced reorganization.

The issue of the reorganization revolved around the fact that the HR Director did not engage the leadership team, his direct reports, in the development of the reorganization. The HR Director deliberately did not engage the team in the development, based on his analysis that the team, at the time, was so embedded in the paradigm of the current organization that a new direction would not be greeted favorably. As was the case, the leadership team's reaction to the new plan demonstrated various degrees of opposition, including the resignation of a team member. After learning that the HR team had issues with the HR Director for omitting them from the reorganization process, he consulted with the meeting facilitator to discuss actions in dealing with staff concerns. At the root of these concerns was the issue of trust, and trusting the new HR Director in engaging them and including them in major HR initiatives. After all, he did ask them to join him in a conference in a team effort - all rowing in the same direction towards the same goal and mission. The team questioned the HR Director's vision of joining him and following him when the Director already excluded them from the creation of a significant HR initiative.

The HR Director addressed the leadership team and engaged them in a conversation about the reorganization. The Director restated his vision, without apology, as his vision, his responsibility and his organization. There are situations where leaders must follow their gut feeling and move forward. This is where the leader stands alone in an organization, in creating significant change interventions first, developing a vision for it, and creating the chaos to implement it. Schein (1992) further explains:

"... The most important point is that leadership starts the change process in the first place. This involves a number of different functions that are often not well understood by leaders. First, they often have to provide the disconfirming information that initiates the change process, and they have to induce the anxiety and guilt to motivate change. Even more important, at the same time leaders must provide enough psychological safety to get members of their organization to accept the need for change and begin the traumatic learning process that is typically involved." (Schein, 1992, pp.332-333).

After the leadership conference, the new Director continued to communicate his reorganization plan and vision of the organization and shared the plan at a meeting with all employees. He also began to quickly change work processes in order to better serve customers. For effective change of work processes, efforts were concentrated on the work processes rather than individual performers. Author Ken Miller (2006) writes that government agencies are composed of systems, and in order to improve the agencies, one needs to improve the systems. Miller (2006) further states that poor performance can most likely be linked to the system, rather than individuals who work in the system.

LESSONS LEARNED

We searched for tangible outcomes from these actions only to realize that an intervention of this size may not see the fruits of its labor for years to come. However, the parties involved, including writers of this case study have learned from this experience and can relate to some obvious, and not so obvious takeaways. A change intervention needs careful planning and execution. It does not simply suffice to share thoughts with key stakeholders and then announce the change in a Leadership Conference. This was the case at the Leadership Conference when the new Director announced his plan. The reaction was overwhelming but not in a positive way. A significant amount of time was spent in smoothing over the reaction. The Director now needed to rebuild trust in his direct reports. The Director learned the value of collaborative decision making and the positive effects of getting people involved at the beginning of a change intervention.

Thorough analysis of the new organization is crucial and needs to be done by the new Director. The Director needs to define the culture and the systems within that culture. He needs to see first hand how people are working, or not working within the systems. The previous Director created an environment where employees did not need to use previously acquired technical skills. The system functioned in a linear, inflexible way, similar to the assembly lines in factories during the Industrial Revolution. Employees simply applied the same action to get the same result, no need for application of any acquired skill, i.e., round pegs into round holes. This created a mechanical process now embedded into the delivery of services. Easier isn't always better, that is, a well oiled machine simply produces the same thing over and over again.

Do not underestimate the power of the people in the field. Often forgotten, because they are not in the forefront, this powerful group is the heart and essence of the organization. They know the latest systems, inventions, news, information and they know what works and what doesn't. This group needs to be cultivated and appreciated for their contributions to the organization.

The customer is always right and it is crucial that we determine what we can do for the customers to help them even if we all work for the same company. The customer is the reason for our existence and without them we wouldn't have work. We emphasize that a strong and collaborative customer relationship will lead the organization to success. Instead of taking the order, we need to work together to find an amenable solution that benefits all parties and the organization.

FUTURE INTERVENTIONS

Since we believe that this transformation has just begun, we've identified some interventions that may be initiated in the near future. One of the first actions is to "fix the machine". It is the system that needs to be fixed, and not the people operating within the system. "Poor performance can usually be traced to the system first." Miller (2006). Therefore, we suggest a thorough analysis of all HR work processes and implementation of a redesign. We suggest breaking up the well oiled machine and reassembling it. We need to find kinder, gentler ways to deliver HR services.

For the new Director, we have concluded that the first thing he must do in an effort to enact this change is to test assumptions. If the transformation attempts to initiate the change based on false assumptions there will be unanticipated consequences. It is especially important that in attempting to change in essence, years of behavior, rituals, and beliefs held by the HR team, it will be more difficult to change the "internal culture" than attempting to change a "broader cultural dimension" because the employee is more personally invested in their internal culture, than the broader culture of the agency. In order to make a successful transition, he will have to "rebuild" a new HR organization, changing the office's focus from transactional HR processing to strategic HR consulting. "Rebuild" does not mean to replace "old" employees with new employees, although that may be an unintended consequence of this change initiative.

The Director must develop a hermeneutic understanding of how HR staff really feels about this notion of serving as strategic consultants. In recognizing the staff's ability, or inability to move forward, as having a major impact on the success or failure of this initiative, the services of a professional Organizational Development (OD) consultant will be analyzed. We suggest that the consultant conducts a cultural audit of the staff in order to determine what practices, if implemented, will work best and which ones will not work at all. In order words, the Director needs to get to know his clients - the HR staff! The consultant, to assist in creating the right environment for the staff to engage in conversation, and sense-making as it relates to a new delivery of HR strategic consultant services. In addition, the benefit of working with a trained OD professional will offer results that will either support, or alter basic assumptions, regarding the staff's ability to make this transition. An extremely important initiative is to develop a hermeneutic understanding of the internal culture that would place the Director in an excellent position to develop the staff's ability to accept and participate in the transition.

Historically, the staff's learning and development activities have been extremely limited. In order to move the HR staff from this traditional transactional mindset and to begin serving as HR consultants, they will have to learn and develop completely different professional competencies - a new set of knowledge, skills and abilities. Their learning and development must happen through a specific and deliberate process. This process would have to contain a balanced curriculum that includes a number of classroom sessions as well as work-based learning initiatives. To begin this learning initiative, we advise the Director to create working teams so that they can collectively make sense of their learning and apply it to HR consultative service functions. The following questions offered by Eric Vogt (1995) will guide the process in building a model:

"But a robust learning architecture must address the why and how of learning in social terms as well as technological terms. To what extent will work teams also be learning teams? Is there a mentor who is separate from the performance management/ appraisal process? How do professionals come together to reflect on their experience? How are new perspectives spread throughout the organization? How do we maintain our organizational memory? How can we rebuild our intellectual capital?" (Vogt,1995, p.310).

Although many of the components of the learning and development model will be clearly identified during and after a cultural audit is completed, the Director needs to ensure that the model contains a rotational assignment component. Based on an analysis of this situation, sending HR staff on rotational assignments to other offices within, or outside the organization, will force them from "Plato's Cave." The rotational assignments will broaden their knowledge of their external customer's needs and thus replace the images on the cave walls with real life images that have an impact on HR functions relating to strategic thinking and problem solving.

To continue the learning, we suggest the consideration of a mentoring program. The program will be designed to help the HR team to expand their skills in order to better consult with the client. A holistic initiation to the HR function will help the HR professional in understanding the complexities a client faces. The benefits will be twofold, developing the employee and providing a succession planning initiative to transfer tacit knowledge from one employee to another.

Other future initiatives to consider would be strategic planning activities with the HR Leadership Team to get them engaged in the development and implementation of future strategies for the organization. Consultation skills development for the HR staff to transition from transactional to transformational is highly recommended. The training will also build self confidence and positively impact the HR staff's image and identity. The HR Director may also consider an employee satisfaction survey to see the issues from the employee's perspective. Also, an extensive cultural study may be considered at a later stage in the transformation. We suggest later, rather than earlier, because the current culture is at the beginning of reinventing itself.

Subject: Human resource management; Federal government; Corporate culture; Organizational change; Studies

Classification: 9130: Experiment/theoretical treatment; 2310: Planning; 6100: Human resource planning

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 309-322

Number of pages: 14

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745599930

Document URL: http://search.proquest.com/docview/745599930?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 51 of 100

SECTION 6. BUSINESS- LEVEL STRATEGIES: FOCUS ON ORGANIZATION DEVELOPMENT, HUMAN RESOURCE DEVELOPMENT - Chapter 32. The Success Story of VRS in National Carbon Company: A Unit of Eveready Industries India Ltd.

Author: Basu, Soma; Datta, Saroj K

ProQuest document link

Abstract:

The success story of Voluntary Retirement scheme (VRS) in the National Carbon Company - a unit of Eveready Industries India Ltd., Kolkata, which was the first dry cell manufacturing plant in India, is an eye opener for research scholars, practicing managers, trade union leaders and for management students. Over the years, technology was not upgraded and labour costs therefore of this unit were quite high compared to other modernized units. The management, in order to make the plant viable took drastic measures of downsizing its workforce through VRS. The study on the success of VRS in the National Carbon Company is to find out the modalities adopted by management to make the VR scheme successful. [PUBLICATION ABSTRACT]

Full text:

BACKGROUND OF THE COMPANY

In 1905 the National Carbon Company, an erstwhile British company started marketing six million dry cells in India. In 1926 it set up its first manufacturing unit at Calcutta. In 1934, National Carbon Company was registered as a 'Company' in India. In December 1955, the company was rechristened as Union Carbide India Ltd., with 51 percent share holding of Union Carbide Corporation, USA, a giant MNC in the business of dry cells, chemicals, plastics and industrial gases with manufacturing and marketing networks all over the world.

The mother plant, i.e. National Carbon Company was manufacturing various types of dry cells used in flash lights, toys and electronic equipment, besides manufacturing and marketing defence cells. During the period 1939-98 Union Carbide India Ltd., had setup 14 manufacturing units in India for manufacturing a variety of products like dry cells, flash lights, cinema carbons, industrial electrodes, chemicals and plastics, marine products and agricultural products. Unfortunately, after the Bhopal gas leak disaster, in its agricultural products division, the company had a set back and the Government of India axed its supply of defence cells as well as de-licensed the pesticide manufacturing unit of the agricultural products division. Till 1972, the mother plant i.e., National Carbon Company, North Calcutta had 3500 workmen and 400 executives. It was seen that labour costs visà- vis per unit of dry cell cost was very high compared to competitors like Novino, Nippo, zeep, Duracell, BPL and Philips.

CORPORATE OBJECTIVES AND STRATEGY

In order to combat escalating labour costs of the mother plant, the company took a strategic decision to install technology intensive modern plants at another location in south Calcutta, Hyderabad and Chennai. In the late 1990's, a world class manufacturing unit of dry cells was setup at Noida, UP. the basic objective of setting-up technology based manufacturing facility was to control costs and combat competition.

CORE COMPETENCY

The company had core competency in carbons and metals business. However, this competency was utilized in manufacturing dry cells and battery component units at Calcutta, Hyderabad and Mumbai.

STRATEGIC PLANNING

Union Carbide India, Ltd. being a cash-rich company, decided on a strategic plan to downsize the mother plant through investment in technology upgradation, material substitution and Voluntary Retirement Scheme (VRS), in respect of skill redundant workmen. Adequate financial resources were allocated for reduction of surplus workforce through VRS on humanitarian considerations at its mother plant. Thus, on the one hand production capacity was enhanced in newly established technology based two other plants, at Calcutta and Hyderabad, technology upgradation of the Chennai plant and world class manufacturing unit at Noida, UP, and on the other hand labour intensive mother plant where labour costs for per unit of production were the highest was downsized gradually through VRS.

ORGANISATION STRUCTURE, EMPLOYEE MANAGEMENT AND LEADERSHIP

Traditionally, the mother plant had a tall organizational structure a with variety of hierarchy which was contributing to disproportionate costs in terms of managerial remuneration and benefits. In order to curtail employee costs, the organisation structure was restructured to make it a flat organization by cutting down the levels as far as possible, and increasing the span of supervision and control of employees. With regard to employee management, an extensive training programme on multi-skilling was introduced for the workmen, and quality and qualifications of the first line supervisors was improved to have better employee management at reduced costs. In the post Bhopal period, as Union Carbide Corporation withdrew its research and development support for manufacturing dry cells, the company took technology support from Japan to continue its operations. Thus, the managerial style of leadership was changed from the US style to the Japanese style of management. An extensive TQM programme and QC concepts were introduced in regard to operations, materials management, etc. with a view to surviving in the highly competitive dry cell market.

FOCUS ISSUE

In order to trim the workforce, a VR scheme was first introduced in National Carbon Company in 1975. Since the response to the scheme was very sluggish and management was getting impatient to reduce the workforce, particularly in the context of lack of defence orders and manufacturing facilities of special type of batteries in newly established plants, the VR scheme was revised seven times between 1976 and 1998. The VR scheme of 1993 had an upper limit of USD 4,516 (1USD=Rs.31, 1993) per workmen but it did not get adequate response. Hence, in 1997, it was enhanced to USD 5,555 (1USD=Rs.36, 1997). Despite this management could not achieve the desired reduction in the level of the workforce. Therefore in 1999 a 'sweetener' was introduced as per the following formula:

A. 3 month's (Basic + D.A.) for each year of completed service

OR

B. (Basic + D.A.) for months of balance service.

OR

C. USD 11627 (1USD = Rs.43, 1999)

whichever is least.

The sweetener was treated as an ex-gratia amount for which income tax is payable by the workman opting for VRS.

RESULTS OBTAINED

Gradually, revision of the VR scheme ultimately reduced the workmen strength from 3500 to 414 while manufacturing the variety of dry cells was restricted to technology based single product, i.e. PLM only.

Salient Features of the Success Story

Salient features of the success story are as follows:

* the trade unions and opinion makers were convinced by the HR department as well as by floor level supervisors regarding necessity of technology change, reduction of per unit labour cost in the context of stiff competition from Novino and Nippo and reduction of surplus workmen.

* Some workman opted for VRS on their own as they required hard cash to repay loans, or to buy landed property or to fulfill family commitments. A large number of up-country workmen from Jharkhand, Bihar and eastern UP were attracted towards VRS as they felt that VR money could be utilized for purchasing land in native places where they wanted to settle down ultimately.

* Due to continuous counseling and transparency regarding technology change and difficulties in surviving in a highly competitive market, many employees realised that time would come soon when the company would not be able to produce dry cells due to increasing labour costs. Some people realized that in the context of ensuing modernisation of the plant they would reach a dead end of skill obsolescence. Therefore, they preferred to exit the company through VRS as early as possible.

* In the apprehension of closure of this unit when the company started modernization of their Hyderabad and Taratala plants as well as commissioning of world class manufacturing unit at Noida, a large number of employees wanted to protect their hard earned money i.e., provident fund and gratuity. As such they preferred to opt for early retirement and invest the amount in secured alternatives.

* A section of workmen believed that the VR amount offered by the company along with the sweetener was more attractive than neighbouring industry who were downsizing through VR, hence, they did not hesitate to opt for VRS.

* A large population was interested in starting their own business and workshops. This happened mostly in case of engineering workman who were ITI trained. They preferred to opt for VR and utilize the sum in business and workshops.

* Almost 50 percent of the workmen of this plant hailed from UP, Bihar, Jharkhand and Orissa who were compelled to maintain dual establishments. These sections of the population preferred to wrap UP their Kolkata establishment and enjoy retired life at their native places.

CONCLUSIONS

The success story of VRS at National Carbon Company was succesful largely due to the efforts of management and trade unions. Some managers even took up an MBO to downsize their departmental employees. The management took help of influential political leaders who mattered to the existing trade unions and could prevail upon some of the rebel union leaders to downsize the workforce. The other factor which helped the company to downsize this plant was the advanced age group of the workmen, who preferred to get away from the monotony of work and wanted to be on their own.

Subject: Downsizing; Batteries; Case studies; Retirement; Success; Workforce planning

Location: India

Company / organization: Name: National Carbon Co; NAICS: 335912

Classification: 6100: Human resource planning; 9110: Company specific; 8650: Electrical & electronics industries; 9179: Asia & the Pacific

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 323-326

Number of pages: 4

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Book

ProQuest document ID: 745600179

Document URL: http://search.proquest.com/docview/745600179?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete

Document 52 of 100

SECTION 6. BUSINESS- LEVEL STRATEGIES: FOCUS ON ORGANIZATION DEVELOPMENT, HUMAN RESOURCE DEVELOPMENT - Chapter 33. Semco: Cultural Transformation and Strategic Leadership

Author: Stockport, Gary J

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Abstract:

The case study documents the changing culture and leadership within Semco since Ricardo Semler took over the running of the company from his father. A number of important events and topics are considered within the case study such as: the early years, the emergence of a democratic workplace, 'The Semco Way', 'The Five Musketeers', the Semco Foundation, New Leadership (without Ricardo Semler). The case study seeks to address a number of questions such as: How did Semco's culture and leadership evolve? How can Semco preserve its culture and its ongoing growth without Ricardo Semler? [PUBLICATION ABSTRACT]

Full text:

INTRODUCTION

Ricardo Semler took over his father's company and turned it into one of Brazil's most enduring success stories. What is unique about Semco is its democratic workplace including its participative management style. Many companies and people (including academics) from around the world have studied Semco, and its revolutionary leader, in an attempt to learn from Semco's success and to hopefully discover its 'secrets'.

By 2008, Ricardo Semler is rarely found at Semco. He has turned his attention to shaping Brazil's next generation. At his Lumiar Schools, Semler who believed in 'managing without managers' wants to 'teach without teachers'. Semler also organises seminars to bring together Brazil's best minds to discuss the nation's future, and in the Brazilian mountains he is applying his philosophy for building a luxury eco-tourism resort. All of these projects operate using the same democratic model created at Semco.

In 2008, Semco was the market leader in industrial equipment and postal and document management solutions. The company has consolidated itself as an 'Active Portfolio Manager' with a proven track record of successful launches and consolidation of businesses in South America and the United States. Semco's activities are focused on the services and industrial sectors, and partnerships with companies that are global leaders in their fields. An investment of US$100,000 made in Semco in 1986 was worth US$5.4m by 2006. In 2007, Semco achieved sales exceeding US$160m, employed over 3,000 people and in the last 16 years had grown by around 27 percent per year.

THE EARLY YEARS

Antonio Curt Semler was born in Vienna in 1912. His father, a successful dentist, wanted Antonio to be a physician. However, he was interested in engineering and after graduating from Vienna's Polytechnic, he accepted a position with the DuPont company in a chemicals and textiles plant in Argentina. By the early 1950s, he had moved to Brazil and had secured a patent for a centrifuge which could separate lubricating oil from vegetables. Semco, (a contraction of Semler & Company), was started in Sao Paulo in 1953.

The introduction of the Brazilian government's National Shipbuilding Plan in the 1960s, provided Semco with a new opportunity, and the company commenced production of hydraulic pumps, load pumps, axles and other naval components. Over the following 20 years, Semco equipped over 70 percent of the domestic fleet.

In the late 1970s, Antonio's teenage son, Ricardo, gave up his rock and roll band to join his father at Semco. The young Semler became increasingly frustrated with the lack of real responsibility, and the condescension with which the other Board and senior staff treated him. His ideas for diversification were mostly ignored.

By 1980, the Brazilian economy was in recession and the shipbuilding industry came to a standstill. Having focused over 90 percent of its product line to this specialised industry, Semco was on the verge of bankruptcy and sought bank loans to stay afloat.

THE NEW LEADER

Semler, tired of fighting with his father and the management team, threatened to leave the company. In a surprising change of heart, Curt named 21 year old Ricardo President and shortly afterwards left on a long vacation only saying: "Do what you need to do." Ricardo immediately set about implementing the first stage of changes including diversification of its products, and the purchase of a number of subsidiaries and foreign companies. Frustrated with the lack of ongoing support, Semler in a single afternoon.

"By 6pm I had fired 60 percent of Semco's top management (15 people many of whom were his father's friends). I'd never hired anybody, much less laid waste to so many people in a single, Godfather-like purge... I chose a Friday because I had hoped everything would simmer down over the weekend."

Semco underwent rapid growth, focusing on productivity and the achievement of ambitious growth projections. This intense focus put increasing strain on the organisation and employee relations hit an all time low. In 1985, Semler aged just 25, collapsed from acute stress. During his convalescence, Ricardo realised that although he had succeeded in saving the company, it was at the expense of his health, and the company he had created was not a happy place for his employees: "The more I thought about it, the more I was convinced the whole company needed to change. I had no grand plan. There was no blinding revelation. Just a sense that there was a lifelessness, a lack of enthusiasm, a malaise at Semco, and that I had to change it."

Some inspirational help came from Clóvis da Silva Bojikian, a small School Principal, forced out of his position by Brazil's dictators, for urging his staff and students to question authority. Following this, Bojikian spent time as the Head of Human Resources at Ford before joining Semco.

Semler and Bojikian realised it might be possible to run a successful business whilst being more humane. Semler explains: "At Semco, the basic question we work on is: how do you get people to want to come to work on a grey Monday morning? This is the only parameter we care about, which is 100 percent a motivation issue. Everything else - quality, profits, growth - will fall into place if enough people are interested in coming to work on Monday morning."

EMERGENCE OF A DEMOCRATIC WORKPLACE

Semler started to experiment with unusual decisions, such as eliminating the company end-of-day searches and the dress code. Semler reflected: "I had always wondered about the security check our people were forced to submit to on their way out through the plant gate. It bothered me that we treated even veteran workers that way."

Next came the revoking of parking privileges for management, and the elimination of executive dining rooms. Members of management that were used to the old, traditional Semco found it increasingly difficult to stay. Ricardo Semler added: "These ideas didn't just come to me. I was testing some of the things I'd learnt in the rock group, where if the drummer doesn't feel like coming to rehearsals you know something's wrong. You can hassle him as much as you want but the problem remains."

The cultural shift that Semler had kicked off, started to gain momentum. What started off as a seemingly innocuous string of decisions, took a much larger shape as workers in the Hobart plant became increasingly responsible for their own work, including setting their own production targets and quotas. Semler noted: "Every few weeks the Hobart plant's managers would spend a lunch hour talking to the workers, who would gather in their cafeteria, 200 strong, and talk about anything that was on their minds. No subject was taboo - salaries, profits, new products, hiring and firing policies were all fair game."

The empowerment that progressively permeated the organisation shocked some supervisors, who felt their power had been taken away. They would complain to Semler in hallways: "I can't even tell if my people are arriving on time."

During the 1980s, the unstoppable cultural changes had reached Semco's structure. The old Semco, which had been a traditionally functional organisation, became the new Semco with an 'amoeba-like' structure of groups of no more than 10 members. Semler added: "I have never met anyone who works effectively with more than 10 or 12 people at the same time. If you put together a group of 200, the transparency is lost and you need to put control systems in place to make sure people are coming in on time. Then it all becomes a boarding school problem."

At some point in the mid-1980s, three Semco engineers proposed a new kind of work unit. They wanted to take a small group of people raised in Semco's culture, and set them free of day-to-day activities such as production problems, orders and inventory. Instead, they would focus on innovation of any type which could include the improvement of manufacturing processes, the creation of new product lines, or development of new market strategies. The so-called Nucleus of Technology Innovation (NTI) was thus started. NTI members would be part of a totally flat hierarchy with neither bosses nor subordinates. Their performance would be assessed every six months by Partners, which would decide whether the NTI members would be allowed six additional months of work or not. By the end of their first six months, NTI had 18 projects under way and one particularly curious invention was a scale that weighed freight trains moving at full speed. Further, NTI compensation and performance would be closely related, as NTI members would be entitled to royalties emanating from new creations, and a share of any savings identified.

Next, a company-wide job rotation programme touched every position at Semco. Semler noted: "We encourage - we practically insist on - job rotation every 2 to 5 years to prevent boredom."

Job rotation included the CEO-ship, which would be shared by six rotating 'Counsellors'. This informal board would frequently meet for day-to-day decisions, while the CEO-ship would be rotated among the Counsellors every six months. Semler gave up the title of CEO and became a Counsellor. The Semco hierarchy, which once housed 12 levels, was pared down to only four. As results followed, the Counsellors felt it would be unfair not to implement a profit sharing programme that would reach every corner of Semco, including factory floors. After a company-wide debate, the Semco Profit-Sharing Programme (SemcoPar) was designed. Every quarter, it would deliver 23 percent of each autonomous business unit's profits to the employees of each individual business unit.

As to whether Semco practices might be a target of employee abuse, Semler points out that: "We've had a few employees take wholesale advantage of our open stockrooms and trusting atmosphere, but we were lucky enough to find and prosecute them without putting in place a lot of insulting watchdog procedures for the nine out of ten who are honest. We've seen a few cases of greed when people set their own salaries too high."

The transformation of Semco took nearly five years to implement. Semco, like much of Brazil, came near collapse in 1990, when the Government seized 80 percent of people's savings in order to try and reorganise the economy. During the next two years, Semco sales fell by around 40 percent. Semco closed large plants and it went from 830 employees to just under 300. The workers agreed to take a pay cut under three conditions which Semco met. First, the profit share percentage was increased to 39 percent of net income, until salaries were restored. Second, management took a 40 percent cut in salary. Lastly, the workers had the right to approve every expenditure. The survival strategy also included the creation of smaller 'satellite' plants that workers could establish as their own ventures. Nowadays, nobody at Semco knows exactly how many people the company employs.

THE SEMCO WAY

Semco created and managed an open management model, which differed from conventional models. The Semco Way was divided into two categories:

1. Principals and Values (Appendix 1)

2. The Manual De Sobrevivência - Survival Manual

Semco gave little credence to what most modern businesses saw as important, such as appearance, titles and formalities. The power of the Semco Way can be attributed partially to the ability of Semco to consistently grow and change over a long period of time, without changing its core values and beliefs.

1. Principles and Values

Semco values and principles directed the culture of the company from its inception in the 1980s, and were critical to Semco's on-going success. Semco continued to maintain its three fundamental values of democracy, profit sharing and information.

* Democracy - this is the cornerstone of the Semco culture. Everyone participates in major decisions. For example, the purchase of a new plant site, or a major acquisition, is done via a direct vote of all members of the organisation.

* Profit Sharing - periodically, employees of Semco determine what their profit share should be (typically 23 percent) and they also decide how to split the profit share.

* Information - is available to everybody and nothing is kept secret. Everyone is trained how to read financial statements.

Semler adds: "Participation gives people control of their work, profit sharing gives them a reason to do it better and information tells them what's working and what isn't."

Ricardo Semler was concerned about the possible threat to the Semco Way through partnering with external companies. Dan Sheffield, Executive Vice President of RGIS Inventory Specialists of Auburn Hills, Michigan, which had a joint venture with Semco to service clients in South America including Wal-Mart, highlighted this concern:

"I don't know that any American company could operate under his beliefs. Even in Brazil, I'm not sure that supervisors walk the walk as thoroughly as Ricardo thinks they do. I'm sure Ricardo wants it that way; and probably has everything in place, but the people under him are maybe not as trusting as he is. Everyone would love to work in an organisation like that, but how do you get there? The only way is for the company to have complete trust in you."

The preservation of its values created a level of flexibility that enabled Semco to adapt to new situations and markets.

THE SURVIVAL MANUAL

Some 20 years after its introduction, Semco continued to maintain its comic book of 'Company Policy', the Survival Manual, as outlines of its culture. This small book illustrates Semco's philosophies and policies, and its focus on trust, respect, communication and freedom. The manual is not a formal set of rules, but rather a declaration. It has been added to, since its original sketching and re-written on occasion, when the employees felt it needed to be changed.

LEADERSHIP FROM 2000

Semler was young, eager and ambitious when he took over the leadership of Semco. He was more interested in bold strategic moves rather than implementation. During the 2000s, he had an ever reducing input in the day-to-day running of Semco, and chose to leave this to the leadership team. Semler's rules for management without control, remained closely aligned with Semco principles and values:

* Forget about the top line;

* Never stop being a start-up;

* Don't be a nanny;

* Let talent find its place;

* Make decisions quickly and openly, and

* Partner promiscuously.

Semler followed his own rules regardless of personal preference. "By having so much stock, I have a loaded gun, but in 25 years I've never used it because you can only use it once... If I veto someone, the next time they're going to say, 'Forget it; he's going to do what he wants.' They have to go through the process where they know they're going to prevail."

THE LEADERSHIP TEAM - THE FIVE MUSKETEERS

The leadership team at Semco from 2000, affectionately known as the Five Musketeers, was an assembly of long serving executives. All were with Semco through tough times, and remained loyal to the organisation. This group formed the core of the rotating CEOships of Semco and its various partnerships. Each had their own leadership style, and not all had a Semler like participative nature.

Jose Vendramin the longest serving of the Semco executives, had been with the company since before Semler took over control. He practiced a 'true' form of participative leadership, masterminding the idea to reorganise the manufacturing employees into autonomous teams of 6-10 employees, and allowing them to set budget and production targets. He also convinced Semler to implement a profit sharing program, as well as linking salaries to production performance. Vendramim embraced this system fully and participated in a salary sharing program with other executives when Semco fell on hard times.

Clovis da Silva Bojikian was another executive that had a leadership style suited to the Semco culture. He abhorred authority but headed Human Resources at Ford with military precision. Ford were pleased when Semco's head hunter approached Bojikian, as he was encouraging Fords workers to rebel against unfair policies and reclaim a work-life balance. Bojikian was one of Ricardo Semler's first hires, and was responsible for Human Resources at Semco. Bojikian's first meeting with Semler was memorable: "They put me in a room, and a boy arrived... I thought he was a messenger. He was about my son's age. He sat down and started to ask me questions, and it was Ricardo Semler."

Semler found an ally to assist in the organisational change required to empower workers with maximum freedom: "Clovis and I (first) met in my office. Headhunters prefer their candidates to wear blue suits, white shirts, neat ties, and be clean-shaven. Yet, here was an excruciating thin man in his late 40s wearing an ugly brown suit, a beige shirt, and a white moustache that wound upwards at the edges, a la Buffalo Bill. (At least he had a tie.) I liked him as soon as I saw him."

Bojikian pioneered Semco's inclusive group interviewing method and eliminated the need to have a Human Resource Department in the company. He was behind improvements made to the factory, office and recreational areas. It was suggested, he was as important to the creation of the Semco culture, as Semler himself.

Jose Alignani belonged to a more authoritative and control oriented leadership style but he agreed that Semco's culture did work. Alignani was known to frequently argue with Semler and the other executive team members. His business approach was focused on performance, and if a particular venture did not show profits and success quickly, he was keen to shut it down and move on. Semco was primarily a start up oriented company, and Alignani had a ruthless approach to those ventures failing to make a profitable return in the required period.

Marcio Batoni held a 'mid-stream' leadership style and was known for his generosity. He joined with Vendramin in the salary sharing program, when Semco was unable to pay executive salaries. He was extremely driven and achieved incredible growth results while at the helm of RGIS, growing the company by 40 percent annually for almost eight years. He was known to be too enthusiastic at times and was once asked to step down by his subordinates for being too driven.

Jose Violi was the entrepreneurial leader of the Five Musketeers. He actively sought out new ventures, contracts and partnerships. He was deeply respected and very much trusted by Semler and the executive team.

"Everyone quickly learned to respect the tiny, timid man who in minutes can cut through a complex business plan to get to its essence. Without Violi we'd be in endless hot water... and yet, he'd have a hard time being hired at another company. He doesn't flaunt his power, doesn't market himself well, and is always ready to say he doesn't know something."

Semler

SUCCESSION

Semler believed a charismatic leader would limit the capacity of Semco to continue on its own into the future. He acknowledged his charismatic style was not good for business, or long term stability, as the company's life cycle would tend to follow his life cycle. This he believed was far too short for the organisation. Semler began to focus seriously on succession within Semco. He also believed an appropriate organisational structure would enable Semco to survive into the future, independent of any change of leadership. His view was succession should happen from within the company and to establish a path for this process he sought proposals from consulting companies specialising in governance and succession. After receiving numerous long and complicated proposals full of graphs and charts Semler had a change of heart: "I think most succession issues are psychological issues, so why don't we go to a psychotherapist?"

Semler organised a three hour session with a psychiatrist for the entire management team and himself. The leadership team were given the opportunity to question Semler on how he would hand-over Semco to someone else. Those involved admitted they achieved as much from spending US$2,000 on the psychiatrist, as they would have, by spending US$300,000 on corporate governance experts.

Semler consciously minimised his importance to enable Semco to grow and develop independently. He removed himself from management, refused an office at Semco headquarters, and commenced travelling for 2-3 months at a time. In recent times, Semco staff held a party commemorating the 10th anniversary of the last time Semler made a business decision. Nevertheless, every important strategic decision still needed Semler's approval.

Preliminary indications show Semco was successful in its aim to grow independent of Semler. In 2004, he was expelled from a Strategic Committee, when he was asked why he was on it, and his only reply was, "I don't know - I've always been on it". Embodying Semco culture, the Committee members informed him his reason was not good enough, and asked him to leave.

SEMLERS ACCIDENT: A TURNING POINT (EARLY 2005)

In his mid 40s, Semler acknowledged he no longer wanted to do more of the same and that he did not need more money. In questioning his life, Semler, wondered: "...what would happen to his company if (I) were hit by a truck?"

One night in February 2005, Semler unfortunately experienced this question first hand when he was nearly killed in a motor vehicle accident on a highway in Brazil. He survived the accident, but spent months in intensive care recuperating from multiple surgeries needed to repair his broken neck and battered face. Semco carried on business as usual, allowing Semler to concentrate on healing his body.

THE SEMCO FOUNDATION

Following his accident, Semler's focus took a change in direction, and his priorities moved from Semco to the Semco Foundation. At the Foundation, he applied the principles of the Semco Way for the benefit of future generations and the wider country. The Semco Foundation was a catalyst for strategic projects, culture and the environment. It conceived projects and implements them from a self-sustaining standpoint. The Foundation works on four different but synergistic fronts:

* The Lumiar Institute - an education system embodying Semco's beliefs. The institute consists of two schools in São Paulo, which encourage children aged 2-10 to learn whatever they consider interesting. The curriculum was based on Semler's belief that people arrive at Semco pre-programmed to accept, submit and conform, throwing away their dreams and talents. In the school, children are free to go to class or not, and Semler looks for interesting people to bring out the 'magic' that resides, for example, in mathematics, sciences and art.

* DNA Brazil Institute - a series of Think Tanks that promote strategic studies for Brazil. The Institute unites Brazil's 50 most renowned specialists in all sectors (actors, architects, economists, geneticists and sociologists etc) once a year in workshops to rethink the country's vocation and future.

* Habit dos Mellos - a social, cultural and environmental project in its first phase. The project seeks to reconstitute the native forest of Mellos and help in the economic growth of the region.

* Festival dos Mellos - a multi-cultural festival with debates, music, dance and theatre. The aim is to show that it is possible to unite serious and intellectual discussion with popular tradition and events.

Semler is no longer worried about Semco surviving without him, and unlike his own father, had no intention of passing Semco on to his son, Felipe.

RECENT LEADERSHIP CHANGES

A significant change of leadership came when Danilo Saicali was unanimously elected by all of the 12 Business Units to become the permanent CEO of Semco. Saicali was originally hired by Semler to run its new ventures unit and he rose through the ranks impressing his co-workers.

Violi was also moved into the permanent position of managing the holding company that owned Semco. These developments effectively removed these two senior executives from daily operations of the business.

New leaders have also merged within the Foundation. Lilian Kelian, although young, is the director of the Lumiar pilot school. She has no background in education, or working experience with Semco. The parents of the children attending the school elected her, and while Semler did not believe this was the right decision, he accepted it: "The parents wanted Lilian, so Lilian's the new director... The person we were backing had 20 years' experience as a school director. But the parents were more interested in the mind-set, the drive, and the belief system. And Lilian has a lot of qualities. She knows we lobbied against her, but now we work together and off we go."

Semco's participative management and the presence of a few veteran leaders enabled it to be largely self-governing by 2008. Semler claimed to have been working on his succession for 15 years, stating 60 percent of the business now comprised of initiatives he had nothing to do with, and that Semco was doing very well without him. Semler's reduced direct involvement with Semco enabled him to devote more time to endeavours, which satisfied his growing philanthropic values. He noted:

"I once worked it out, after 12 million, all millionaires are the same. That's because we're all humans, confined to human scale. How many homes can you live in? How many meals can you eat? You can have a living room the size of a cathedral, but you won't live in it, it's too big."

Along with Foundation work, Semler also entered the hospitality industry. His projects had a community and environmental focus in the form of a boutique hotel and botanical gardens. For example:

* Hotel Botanique was an upscale eco-resort located 125 miles northwest of São Paulo in Bairro dos Mellos, a destitute village with 38 percent unemployment. The project had been a study in contradictions, containing luxuries essential to an international destination resort, but rigorously natural. No televisions, or air conditioning were provided, and only exclusively locally grown, organic produce used in its French restaurant. Semler was committed to staffing the hotel with local people.

Table 1 compares the number of employees and sales between 1982-2007.

Semco had two distinct spheres of operations (Figure 2):

* Internal - here, the Semco culture and values operated the strongest and included core Semco business units; and

* External - here, strong mutually beneficial partnerships had been forged between foreign organisations and Semco. In these partnerships, Semco provided access to the Brazilian market, and the partner brought new skills and diversification to Semco's business operations.

FUTURE CHALLENGES

The transformation of Semco, from a militaristic autocracy to an entrepreneurial democracy has taken over a quarter of a century, and according to Semler, is not yet completed. Strategic transformation of any form is normally confronting for any organisation and for any leader. The strategic challenge for Semco might be the way to continually re-invent Strategic Leadership within the company.

ACKNOWLEDGEMENTS

This case study was written by Professor Gary Stockport and MBA students Diane Caroll, Montag Davis, Martin Engel, Amra Filipovic, Sarah Maiden and Ella Tribe.

Subject: Case studies; Organizational change; Strategic management; Succession planning; Industrial equipment; Leadership

Location: Brazil

People: Semler, Ricardo

Company / organization: Name: Semco SA; NAICS: 339999

Classification: 8670: Machinery industry; 9110: Company specific; 2310: Planning; 9173: Latin America

Publication title: Enhancing Organizational Performance Through Strategic Initiatives : Handbook of Management Cases

Pages: 327-338

Number of pages: 12

Publication year: 2009

Publication date: 2009

Year: 2009

Publisher: Institute of Management Education

Place of publication: Sahibabad

Country of publication: India

Publication subject: Business And Economics--Management

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Book, Business Case

ProQuest document ID: 745600052

Document URL: http://search.proquest.com/docview/745600052?accountid=38610

Copyright: Copyright Institute of Management Education 2009

Last updated: 2010-11-12

Database: ABI/INFORM Complete