Strategic Management of Four Different Companies - Case Study Example

Case Summary (Dell, Inc.) Dell, Inc. was founded by Michael Dell out of his college dormitory room back in 1984 while he was still a 19-year-old student at the University of Texas. His idea was to offer enhanced features on his refurbished computers bought from the excess inventories of local suppliers, such as adding more memory space and disk drives. His entrepreneurial venture had grown rapidly such that by the next succeeding year, he was already selling some US$50,000 worth of PCs to local businesses per month. By 1985, he had started manufacturing his own computers (although at this point, it is more correct to say he started assembling his own PCs) and soon targeted large corporate accounts with his low-cost computers. He also started to be more aggressive in his marketing campaigns, putting out ads in computer trade publications in time with the first-ever sales and product catalog of his company. About a decade later, sales reached nearly US$3.5 billion annually and by 2001, reached the top rank in global market share in computer sales (also number one in the U.S.). However, this rapid growth soon reached a plateau due to a disorganized corporate structure from having a very rapid growth. It abandoned its retail outlet distribution system and went back to direct distribution which was its original business model responsible for its success. Its business model is anchored on an efficient supply-chain management and logistics system that delivers made-to-order PCs direct to consumers. It also deliberately waits for few months for any new computer technology (whether hardware or software) to become standardized for it to be able to leverage its core competence in fast assembly of PCs. This minimizes its risks to technological obsolescence in an industry that is characterized by very rapid changes. Main Strategic Issues – Dell, Inc. is faced with a changed business and economic environment in which its competitors were able to catch up or match its low-cost pricing. This put pressure on the company's finances as profit margins were squeezed. The reductions of its overhead expenses plus manufacturing efficiencies gave it virtual monopoly of low-cost PCs but not anymore. Further, its leverage in terms of purchasing power from its supplies had been somewhat dented with the slowdown in PC sales worldwide to just 5% annually compared to torrid growth rates in prior years. Lastly, the biggest challenge facing the company is the vast change in consumer behaviors. The trend is now for a potential buyer to go to a retail store to actually see and touch a PC before making a purchase decision, which put Dell, Inc. at serious disadvantage given its direct sale approach via the Internet and phone orders only. Its model of direct marketing, purchasing leverage over its suppliers and manufacturing efficiency were no longer applicable in a changed environment and needs a serious re-think by the company. Lastly, the firm has to decide which market segment to focus on: the individual consumers or the highly-profitable corporate market although its projected growth rate is lower (Hunger 5). Why this case? I chose Dell, Inc. because it is a very good example of how a good entrepreneur can gain global success by starting small but armed with a viable business idea. It is very inspiring for someone to read and perhaps emulate the same values in establishing a business venture later on and serves as a good illustrative model of what it takes for success. Benefits – the lessons learned from this case study is that any business has to be always on the lookout for industry changes and adapt accordingly in a timely manner. In his autobiographical book, Mr. Andy Grove of Intel fame calls these industry changes inflection points that can alter an industry and make an existing technology obsolete and make a firm go bankrupt if it is not able to quickly adjust and grasp the new opportunities (Grove 87). It is a highly-recommended reading exercise to study Dell, Inc. on how it goes about its business. Recommendations – Dell, Inc. can implement these three options to survive and prosper in a changed business environment brought about by shifting consumer preferences: 1. Put its products in retail stores again - so potential buyers can actually see these PCs before buying. Its direct marketing strategy is not a viable alternative considering how consumers want to see and touch the actual product before making a purchase. So it has to again tie up with retailers or put up its own retail stores (similar to what Apple, Inc. did). Dell, Inc. had signed an agreement with Wal-Mart for Dell to display its line of finished products instead of the customer ordering the PC first. This approach now requires Dell, Inc. to invest in a finished-goods inventory unlike before. 2. Streamline its Product Offerings – the company had expanded so rapidly in the past and it quickly grew its product portfolio to a dizzying array of personal computers, desktops, laptops, printers, network servers, memory storage systems and all the other peripherals it is now hard to focus on which products are really profitable from the company's viewpoint in terms of strategic marketing options; it has to prioritize. 3. Decide on which Market Segment to Focus – for now, the choice is which segment to concentrate on, which is either the individual consumer market or the high profit corporate segment. The former has a projected growth rate of about 10% (2007) but with a lower profit margin of only 6% while the corporate sector is expected to be growing only at 7.8% but provide 11% margins from corporate buyers. If this segment continues to slow down significantly due to the reduced spending budgets for IT in the face of a severe economic recession, Dell, Inc. has to re-evaluate its primary focus on this sector because it provides some 85% of its total revenues. So, the final question is whether to concentrate on retention of market share and growth or go for the profits. It can be a deliberate corporate choice to sacrifice profit for a larger market share. Case Summary (Everyone Does It - ISI) International Satellite Images (ISI) is a venture company engaged in the imaging business using satellites positioned in outer space. Its technology is used to capture images of any object on the ground anywhere on earth to identify it precisely, up to an image resolution of one meter, which means a photo analyst can virtually identify any type of vehicle running on the ground. This technology has both military and civilian uses but it is primarily a military application to spy on other countries. The satellite imaging business is very competitive which is controlled by only a few companies with the technology. It is also important that a company is able to sign contracts before the actual launch of satellites in order to justify its investment risks to the venture capitalists who provided seed money before a satellite is built. It is quite common for companies to miss their launch dates because of problems and this is the case here with ISI, as it found out its sub-contractor for the satellite cameras is having some technical difficulties with the thermal stabilizer for the instrument. The estimated delay is from 12 to 18 months from the satellite's published date of launching. This problem is a moral quandary for Mr. Jim Willis (VP for Marketing and Sales) as he is about to enter into new negotiations with a potential Japanese corporate client. The knowledge that there will be some delays might make the Japanese firm back out of the negotiations and pursue some new options with the competitors of ISI. On the other hand, Jim's boss, Mr. Fred Ballard (president of ISI) told him not to worry too much about the delay and not inform the Japanese as it is a normal practice within the satellite industry to suffer delays due to one reason or another. The dilemma facing Jim is an ethical one: whether to truthfully tell the Japanese company that there is a delay (known to him already) or go ahead with the negotiations and inform them about the delay after a contract is signed as the other competitors are also likely to suffer similar delays in their launch dates. The delay is thought as proprietary information. Main Strategic Issues – there are two main issues in this case, which is telling the Japanese counterpart that a delay is inevitable and the second issue concerns the investors of the company ISI. Both issues have a commonality in them which is an ethical and moral issue regarding truthfulness and full disclosure (transparency and accountability). Why this case? The ISI case study is interesting in that it tackled an ethical issue that is rarely discussed in most business graduate schools. Business leaders will soon have to face similar situations regarding their jobs and must be faced squarely in light of corporate or governance issues and ultimately, corporate social responsibility. A business leader who tells the truth about his company in today's business climate has a greater chance at success later. Benefits – the case is a good example of a business ethics case and serves as a test case for future business leaders when they eventually assume important company positions. It gives a student valuable insights into what actions to take in case of a moral dilemma. Recommendations – there are sometimes no easy answers to an ethical dilemma. However, a business executive must decide on what he or she thinks is right, regardless of the financial or commercial ramifications. However, in ISI, it is in a very precarious position as it negotiates with the Higashi Trading Company (HTC) as this initial contract can make or break ISI. In this regard, a decision has to be tempered with the financial impacts of telling the truth on the delays or not, based on possible reactions of the Japanese (Cox & Johnson 1). Tell the Japanese about the delay but shorten the possible delays to about six months. Tell them the problem is with sub-contractor but ISI is expecting it to be resolved in a short time (again, possibly for six months only, at the most, so they will not negotiate with the competitors of ISI, who will most probably have delays of more than 6 mos.) Jim can profess ignorance about the possible delay because it is considered as a firm's proprietary information and remains to be highly confidential insider information. Case Summary (Movie Gallery, Inc.) Movie Gallery, Inc. is a movie video rental company that arose out of the new and exciting DVD technological innovation. Movies can now be saved and watched anytime at a home or anywhere else at anytime. This means people no longer have to go out to the theaters to watch a movie. This new mode of watching movies is known as “canned” entertainment. It had revolutionized the movie industry by making films more affordable and very convenient. The company was founded by Joe Malugen and Harrison Parrish in Dothan, Alabama back in 1985 by riding on the crest of this new consumer trend in watching movies and films. It grew quite rapidly in its early years through organic growth and through acquisitions of the related companies it saw fit to buy. It also used the franchising business model to build up new outlet stores and used the funds from its initial public offering (in August 1994) for an aggressive expansion strategy like buying out Blowout Entertainment in 1999 and Video Update in 2003. Its target market are the small towns with less than 20,000 population and in those suburban areas as well where its economies of scale allow it to offer cheaper rental prices. Its strategy later on became quite ambitious by targeting larger markets through the acquisition of giant Hollywood Video for US$1.2 billion, more than doubling its rental outlets from 2,000 to 4.700 outlets by a single bold stroke, with revenues reaching a staggering US$2.5 billion. This expansionist strategy had its downside as the company later on run into liquidity problems in servicing its debts. However, industry changes brought about by the on-line video rental that is offered by competitors such as Blockbuster and newcomer Netflix cut into its retail sales. Among the three major competitors, Netflix was the most successful as it used a different type of business model than either Movie Gallery or Blockbuster. But perhaps the most threatening technological change was advent of video downloads, offered by firms like Movielink.com as broadband capabilities increased to make movie downloads easier and faster (Hunger 3). Main Strategic Issues – the challenges faced by Movie Gallery, Inc. is how to find new ways of delivering content, using an entirely different business model than the one it uses currently. The company has to find ways to cut operating costs as same-store revenues fell due to consumers shifting to other modes of watching movies, such as on-line via the Internet. The firm likewise has to cut the rental overhead costs of its retail outlets by negotiating subleases. But the main issue is how to retain its customer base and migrate them to other media. Why this case? Movie Gallery, Inc. offers instructive lessons on how to cope with industry changes brought about by technological innovations. The VCR had given way to the newer DVD which in turn is now being replaced by on-line movie downloads. This means all industry executives has to stay alert to new challenges posed by technological changes that in turn offer new opportunities for those who can quickly adapt to the new technologies. Benefits – the way Movie Gallery, Inc. responds to the present challenges can be powerful tools for learning in a competitive business environment that requires a newer model of doing business. Blockbuster had innovated by mailing DVD rentals instead of customers going to outlets which removes the hassles of traveling. Movie Gallery, Inc. is hobbled by its older business model of operating retail outlets which are cumbersome and expensive. It has to completely revamp its way of doing business if it hopes to survives an industry shakeout. Recommendations – the company has to re-think of how it does its business by a paradigm shift. The new battleground is in the form of media used to deliver content. 1. Adopt a digital presence by putting up a Web site where clients can input their movie selections much more conveniently and order their rental selections on-line. 2. Negotiate with film studios for exclusive releases such as blockbuster films which can attract the clients to retain their accounts with Movie Gallery, Inc. for the long term. 3. Offer a wider collection of movies, such as old-time hits and other archived films. Case Summary (The Carey Plant) This case involves Carey Manufacturing which is a specialty machine parts maker for the furniture industry. The company was subsequently acquired three years ago by bigger Gardner Company as part of its expansion plans which is known for its manufacturing ability, competency and efficiency. Carey Manufacturing's name was changed to Carey Plant and its previous business owner retained as its general plant manager. However, this new set-up had brought on unforeseen problems due to the two lines of reporting in which some of functional department managers still reported to James Carey (previous owner who was retained) while other departments reported indirectly to new owners headquartered at Gardner Company. The Human Resources, Engineering, Finance, Materials, Operations and Quality Assurance all had to report to Mr. Carey directly while the department heads of Human Resources, Materials, Engineering and Operations Departments had to make additional indirect reports to Gardner. There is an overlap in this reporting system which could be part of the cause of its problems. After its acquisition, the Carey Plant soon experienced a variety of problems such as labor unrest, increasing costs, flat sales revenues and a drop in profits. This bad situation is primarily caused by the passive role of James Carey as the retained plant manager which had resulted in employee demoralization. Mr. Carey often refused to make decisions as he wanted to defer to the new owners but this had been misinterpreted as passivity and lack of interest. A new plant manager had to be designated to bring the plant up to Gardner's high standards. The change in top management at the plant is to be coupled with an upgrading of its old equipment and facilities which are overcrowded in the old plant and will be transferred to an adjacent but bigger empty lot property. The Gardner Company must now look for a new plant manager but is considering whether its choice would be good enough to turn the plant around. A candidate named Bill May had been tentatively selected for the job but he is hesitant to accept the offer. Main Strategic Issues – the main issues facing Gardner management is whether to appoint a staff member like Bill May as the new plant manager which requires a very strong technical or engineering background with line management experience. However, there are a few strong points going for Bill May such as his MBA degree, a cost-conscious analytic mind and general administrative ability (Wheelen & Hunger 3). These qualities can compensate for the aforesaid lack of technical or line experience in the long run since the problems at Carey Plant needs to be analyzed thoroughly, such as implementing cost control measures towards attainment of financial goals. But beyond these concerns, the bigger issue is whether Bill May can inspire the employees and bring back their enthusiasm for their jobs like they had used to. Why this case? This is a very interesting case because it brings up another issue of great concern to any business management student. That issue is the issue of leadership which is a crucial but an often overlooked quality in most managers. Bill May will be judged by his ability to transform employee attitudes and expectations that requires people-handling skills. Benefits – reading this case gives valuable insights into the multiplicity of newer problems that can arise from seemingly good-fit acquisitions. Sometimes the expected good, beneficial results from the synergy of two merged firms do not materialize as expected. Recommendations – Bill May is more than capable of handling the plant manager position of the plant but he needs self-confidence and help from Gardner's top management as well to accomplish his designated mission of turning the plant around back to profitability. Responsibilities must be spelled out clearly so that Bill May will know the limits of his functions. Corresponding authority must be given to him to hire and fire people. A job description for the plant manager position must be given to Bill May so he will know what to do based on management expectations of what can be realistically done. The objectives set out for him to accomplish must have a specific time frame. Works Cited Cox, Steven M., and Shawana P. Johnson. “Case 5: Everyone Does It.” Strategic Management and Business Policy. Upper Saddle River, NJ, USA: Prentice-Hall, 2005. 1-3. Print. Grove, Andrew S. Only the Paranoid Survive. New York, NY, USA: Currency-Doubleday Publishing, 1996. Print. Hunger, David. J. “Case 37: Dell, Inc.” Strategic Management and Business Policy. Upper Saddle River, NJ, USA: Prentice-Hall, 2006. 1-5. Print. Hunger, David. J. “Case 43: Movie Gallery, Inc.” Strategic Management and Business Policy. Upper Saddle River, NJ, USA: Prentice-Hall, 2006. 1-4. Print. Hunger, David. J., and Thomas L. Wheelen. “Case 28: The Carey Plant.” Strategic Management and Business Policy. Upper Saddle River, NJ, USA: Prentice-Hall, 2001. 1-4. Print. Read More