Current Performance Evaluation of Office Depot - Case Study Example

Office Depot BY YOU YOUR ACADEMIC ORGANIZATION HERE HERE Office Depot 1a. Current Performance Evaluation Office Depot is currently facing significant challenges in the face of rising competition, poor national and international economic conditions, and an apparent inability to create a solid brand image for the company in the minds of ever-changing consumer preferences in retail. Currently, the North American sales environment is saturated with high volumes of competition which has given Office Depot considerably less strategic and competitive advantage in the contemporary retail environment. Office Depot generated sales revenues of $15,010,781 in 2007 (Annual Report, 2007). However, the costs of goods sold and other operating expenditures left Office Depot with only $516 million in assets, which has led to decreased stock/share value for investors and has given Office Depot considerable financial challenges. This change in stock value occurred in a very short period of time. For instance, in January 2007, Office Depot per-share value was $38.00, however today that stock price is valued at only $1.86 (Finance.yahoo.com, 2008). This represents a significant reduction which is largely based on high volumes of debt for leveraged business operations and international expansion as well as reduced sales volumes from heavy competition in the home office sales environment. Additionally, the company currently has nearly 399 million investment shares outstanding, suggesting a highly diluted investment strategy where capital is raised continuously using stock equities (Annual Report). When high volumes of shares are on the stock market, the per-share value of the company is reduced, making Office Depot somewhat of a risky investment for long-term (or even short-term) gain. In today’s difficult economic climate, low stock prices created by high dilution rates will prevent the company from generating additional capital in the stock market; a limitation for Office Depot. In terms of cash flow, which provides a portrait of the company’s overall health, Office Depot has experienced a sizeable erosion in cash flow in a one year period. For instance, in 2004, the company maintained a $793 million cash balance at the end of the year. Today, that total is only $173 million, which represents a $620 million decrease in only three years (Annual Report). Large-scale reductions in cash flow and stock price would point toward a company which requires an immediate change of business strategy and marketing philosophy in order to sustain longevity in the home office sales market. Additionally, Office Depot maintained zero short-term investments in the entire fiscal year of 2007, suggesting a financial portfolio which requires diversification to ensure that additional revenues are being generated by investment-minded activities. Though Office Depot maintains many long-term investments, such as equipment and buildings, the business’ current financial condition points toward the necessity for a more investment-minded company model. However, Office Depot does maintain several strengths in this financial analysis as the business maintains 1,506 stores both in North America and across the globe (Annual Report). Outside of the firm’s bricks-and-mortar retail stores, the business maintains a strong sales group, a series of telephone account managers, direct mailings and multiple websites to build strong sales growth (Community.officedepot.com, 2008). This gives the business credit for maintaining a strong distribution and supply chain focus as well as utilizing more than just the in-store sales experience to generate further sales growth. From this perspective, Office Depot maintains a diverse portfolio in terms of reaching the firm’s desired consumer audience and maintaining the systems and processes to make these sales expectations a reality. Office Depot also appears to be continuously working on various promotional partnerships in order to build a strong connection with its target customers. For instance, in 2008, the business partnered with McAfee Security, an online computer security manufacturer, to provide enhanced solutions for the consumer and the business customer (McAfee, 2008). The establishment of the Tech Depot Services division is a marketing objective designed to offer customers additional in-house technical support with the purchase of a personal computer from Office Depot. McAfee maintains strong brand recognition by many consumers for its superiority over many other online security systems, which suggests that Office Depot recognizes the importance of strategic partnerships where multiple brand power can feed Office Depot’s growth expectations. This represents a rather contemporary business approach to gaining new customers simply by adding increased emphasis to sales and marketing tactics which give Office Depot a brand edge over other home office retailers. The company sells products through a multi-tier distribution system and maintains a wide variety of exclusive brands, such as the Viking Office Products and Viking Direct brands (Lee, 2005). It is perhaps due to the company’s ability to create positive brands and its sound distribution system which has granted the company a near $1.25 Billion credit line for further expansion (Financial Wire, 2008). If a business were considered a sizeable risk, it would likely not receive adequate credit funding. Despite Office Depot’s many financial challenges brought on by both external and environmental issues, the company has managed to experience longevity both domestically and in foreign market territories. Even though the firm’s sales volumes are diminishing year by year and the costs of operating the business continue to rise, Office Depot appears to have a very flexible business model which is adaptable in the face of changing consumer preferences, difficult economic conditions, and rising levels of North American competition. In October 2008, Credit Suisse downgraded Office Depot from neutral to underperform, which suggests an eroding total business value for Office Depot (Finance.yahoo.com, 2008). In fact, the majority of analyst opinion has given the company a less-than-stellar outlook in terms of total investment value over the last year. Despite these downgrades, when other companies are declaring bankruptcy for an inability to adapt to difficult economic and environmental situations, Office Depot remains in the top tier of successful home office retailers. 1b. Company Philosophies – Mission Office Depot, unlike many other retailers of this category, maintains several distinct missions designed to appeal to the generic customer, the environmental advocate, and the community-minded citizen. Office Depot’s business mission is simple: To utilize corporate-wide diversity to create fanatical customer service and excellence in business and operational execution (Manonamission.com, 2007). Though the company has not crafted a specific mission statement which has been publicized, the company’s mission is linked to its core values related to excellence in service and operations. From a community and social stewardship perspective, Office Depot’s mission is to: Deliver winning solutions that inspire worklife and is committed to caring and making a difference especially with helping children (Community.officedepot.com). Through innovation, inclusion, customer focus and individual accountability, Office Depot is able to follow through on providing assistance to the communities in which the business operates and provide excellence in terms of overall Corporate Social Responsibility (CSR). Additionally, Office Depot maintains an environmental mission of providing products which do not contribute to growing ecological problems and to conduct business in a fashion which provides the most value to community. Though specific environmental initiatives could not be identified through research, the fact that Office Depot reinforces mission and values in the majority of its investor-related materials tends to illustrate a company which is well-versed in the necessity for positive public relations and responsible business practices. Objectives Like most retail businesses, Office Depot strives for excellence in service and support by utilizing a dedicated internal staff to link growth with expertise. The company, until only recently, maintained a very growth-oriented objective for stronger international presence in emerging markets. This focus has changed with recent sales declines and diminishing cash reserves related to global expansion efforts. This is not anything to be concerned about as most organizations, during difficult external economic conditions, tend to scale back expansion until the business conditions return to more favorable for the company. Maintaining an objective to become the foremost leader in home office retail is the basic objective of Office Depot and these efforts are reinforced by technological changes to the supply chain, cost-reduction activities, and heavier concentration in marketing to reach larger customer audiences. Though it does not appear that Office Depot has radically changed their business model in response to today’s economic and competitive realities, the business does seem well-suited for gaining market share with various brand partnerships and intensive marketing literature and promotion. Strategies Office Depot desires to open 300 or more stores in North America by the end of 2009 (Annual Report). As part of their growth strategy, Office Depot intends on focusing its marketing efforts toward the firm’s Design, Print & Ship options which build customized equipment and applications for the firm’s customers. Sales growth is also conceptualized by remodeling stores to make them more attractive to customers and to make them more user-friendly (Annual Report). From a domestic perspective, Office Depot’s strategy is simply to revamp the company’s image and create a more effective marketing relationship with customers. Internationally, the company remains focused on acquiring existing companies as a means of expansion by capitalizing on existing company strengths in foreign market environments. Buying an existing business rather than opening a new store represents less of a business expenditure (in terms of operations, taxation, lease, etc), which shows that Office Depot is serious about building a stronger international presence without removing shareholder value in the process. Less business expenditures will increase monthly cash flow, making this company a more attractive investment and likely driving up the value of the firm’s stock. Policies Many organizations today do not heavily publicize their policies in relation to internal operations and staff activities, thus research evidence on this aspect of business are often difficult to locate. However, despite this limitation, Office Depot strives to strongly promote diversity in all areas of employment (making this company attractive to many demographics) as well as conducting business with fair policies for both the employee and the external vendor. Like most companies of this scale and dimension, Office Depot’s policies promote fairness, justice, loyalty and superior performance over that of competitors. Office Depot appears to maintain a very people-focused organization where excellence is rewarded with opportunity for advancement and ample training and development is a routine element in the business. For instance, the company established ethics training in over 14 operating countries by 2006 and the business was named one of the top 100 best corporate citizens by Corporate Responsibility Officer Magazine (Community.officedepot.com). All of the aforementioned tend to illustrate a company that remains widely-focused on competence and service and constructs the appropriate policies and training necessary to make good corporate citizenship a regular business and operational reality. In essence, Office Depot appears to maintain a strong connection with both its customers and the external environment through the creation of policies which promote a positive and rewarding business environment for all stakeholders involved or affected by the business’ activities. 2. Review of Corporate Governance – Board of Directors One of the main themes at Office Depot involves competence and accountability at the executive level. The Board of Directors consists of 12 representatives, each maintaining their own unique levels of business experience. The table below illustrates the Board of Directors at the company. The blend of experiences represented on the Board of Directors include expertise in mutual funds and other asset-related investments, venture capitalists, fashion marketing and even expertise with charitable organizations (Investor.officedepot.com, 2008). It is crucial that a company’s board of directors maintain not only an understanding of the specific business environment in which they govern, but also in extended activities such as charitable donations and investment opportunities. This will give a business increased flexibility and the know-how to expand the company’s outlook and create a more diverse portfolio of business-related and investment-related opportunities. Because the board of directors generally acts as the final decision-maker in large-scale business activities, it is crucial that a company maintains a board with a wide variety of knowledge in different business-related arenas. With Office Depot’s strong inclination toward personal accountability at all levels of the business, the company has established an auditing committee as a control measure to ensure that all levels of the business are operating to ethical and generic policy standards. The auditing committee is also made up of at least three members of the Board of Directors and reports back on recommendations for changes/improvements to accounting as well as identify any issues with respect to business integrity which have been observed through the audit processes. From virtually any angle, Office Depot’s corporate governance and the structure by which it is scrutinized is top-notch and brings significant value to the Office Depot team. Top Management The company’s Chief Executive Officer is Steve Odland, whose broad profile of business experience includes being the CEO of Autozone as well as an executive position at Sara Lee, Quaker Oats, and General Mills. Odland has been the company’s Chief Executive since 2005. Mike Newman and Chuck Rubin incorporate the positions of President and Chief Financial Officer at Office Depot, both with considerable experience at companies such as Radio Shack, General Electric, and even Nascar marketing (Investor.officedepot.com). Both senior-level representatives are relatively new to the Office Depot family. The senior hierarchy at Office Depot is quite diverse, filled with a variety of other junior-executive-level administrators with varying degrees of experience and expertise. However, this fits in congruently with the company’s firm focus on diversity, giving Office Depot a considerable edge in terms of corporate governance and executive competency in comparison to other retail companies which have experienced problems with ineffective leadership. Elisa Garcia, Office Depot’s Executive Vice President, is also fluent in both English and Spanish, giving the firm the opportunity to create a connection with foreign citizens and businesspersons across the globe; another competitive advantage. Charles Brown, President of the international division at Office Depot, maintains experience at PepsiCo and Aramark Corporation, offering significant executive know-how in terms of supply chain and distribution for companies of such a large retail scale. The executive team at Office Depot appears well-equipped and knowledgeable to handle a wide variety of situations which can bring the company into a better long-term position. Unique understandings, at the executive level, of marketing, human resources, investment strategy and Corporate Social Responsibility makes the leadership group at Office Depot both efficient and able to adapt to changing market conditions. It is a likely assessment that the company would currently be experiencing significant reductions in sales revenue without the dedication and long-term focus of its competent leadership team. References Annual Report. (2007). “Office Depot Annual Report – Taking Care of Business”. Retrieved 20 Nov 2008 from http://216.139.227.101/interactive/odp2006/ Community.officedepot.com. (2008). “Corporate Citizen Report Highlights”. Retrieved 20 Nov 2008 from http://www.community.officedepot.com/default.asp Finance.yahoo.com. (2008). “Office Depot, Inc. (ODP)”. Stock Quotations retrieved from Yahoo! website 20 Nov 2008 from http://finance.yahoo.com/q/ao?s=ODP Financial Wire. (2008). “Office Depot Closes on $1.25 Billion Credit Line”. Forest Hills. 28 Sep 2008. Retrieved 20 Nov 2008 from ProQuest Database. Investor.officedepot.com. (2008). “Management Team – Board of Directors”. Retrieved 20 Nov 2008 from http://investor.officedepot.com/phoenix.zhtml?c=94746&p=irol-govHighlights Lee, In. (2005). Office Depot’s E-Commerce Evaluation. Hershey, PA: Idea Group Publishing. Manonamission.com. (2007). “Office Depot’s Mission Statement”. Retrieved 20 Nov 2008 from http://manonamission.blogspot.com/2005/06/office-depots-odp-mission-statement.html McAfee. (2008). “Office Depot Partners with McAfee to Provide Internet Security Solutions for Customers”. Business Wire Press Release. Retrieved from Yahoo! 20 Nov 2008 http://biz.yahoo.com/bw/081126/20081126005137.html?.v=2 Read More