SUBJECT: PRINCIPLE & PRACTICE OF MANAGEMENT
Marks: 80
CASE STUDY : 1
International Case : Carrefour — Which Way to Go?
Wal-Mart’s biggest global competitor is the big French retailer Carretour, a firm that has hypermarkets, big stores offering a variety of goods. It has made large investments around the globe in Latin America and China. But not all is well as competitors taking market share its home market, for instance. There has been even speculation of a takeover by Wal-Mart or Tesco, an English chain. Mr. Barnard has been ousted after heading the company for 12 years; he was replaced by Jose Luis Durant who is of German-Spanish descent. Although the global expansion is cited by some as success, it may be even a big mistake. It withdrew from Japan and sold 29 hypermarkets in Mexico. Carrefour also had problems competing with Tesco in Slovakia and the Czech Republic. In Germany, the company faced tough competition from Aldi and Lidle, two successful discounters. On the other hand, it bought stores in Poland, Italy, Turkey, and opened new stores in China, South Korea, and Columbia. Carrefour has become more careful in selecting markets. But. the company is eager to enter the Indian market, but found out in late 2006 that Wal-Mart will do so as well.
In France, where Carrefour is well established, the company made the big mistake in its pricing policy. It probably started with the 1999 merger with Promodes, the French discount chain. Carrefour confused the French clientele by losing its low-cost image; whether the image can be changed remains to be seen. Mr. Durant, the new CEO since 2005, embarked on the new strategy by offering 15 percent new products in its hypermarkets and 10 percent in its supermarkets. Moreover, he wants to employ more staff, extend the operating hours in certain hypermarkets, cutting prices, trying small stores, and pushing down decision making. Mr. Durant aims to stay only in countries where Carrefour is among the top retailers.
Questions:
1. How should Mr. Durant assess the opportunities in various countries around the world?
2. Should Carrefour adopt Wal-Mart’s strategy of “low prices everyday”? What would be the advantage or disadvantage of such a strategy?
3. How could Carrefour differentiate itself from Wal-Mart?
4. Identify cultures in selected countries that need to be considered in order to be successful?
CASE STUDY : 2
International Case : Reengineering the Business Process at Procter & Gamble
Procter & Gamble (P&G), a multinational corporation known for products such as diapers, shampoo, soap, and toothpaste, was committed to improving value to the customer. Its products were sold through various channels, such as grocery retailers, wholesalers, mass merchandisers, and club stores. The flow of goods in the retail grocery channel was from the factory’s warehouse to the distributors’ warehouses before going to the grocery stores where customers selected the merchandise from the shelves.
The improvement-driven company was not satisfied with its performance and developed a variety of programs to improve its service and the efficiency of its operation. One such program was electronic data interchange, which provided daily information from the retail stores to P&G. The installation of the system resulted in better service, reduced inventory levels, and labor-cost savings. Another approach, the continuous replenishment program, provided additional benefits for P&G as well as for its retailer customers. Eventually, the entire ordering system was redesigned, with the result of dramatic performance improvements. The reengineering efforts also required restructuring of the organization. P&G had been known for its brand management for more than 50 years. But in the late 1980s and early 1990s, the brand management approach pioneered by the company in the 1930s required rethinking and restructuring. In a drive to improve efficiency and coordination, several brands were combined with authority and responsibility given to category managers. Such a manager would determine overall pricing and product policies. Moreover, the category managers had the authority to withdraw weak brands, thus avoiding conflict between similar brands. They were also held responsible for the profit of the product category they were managing. The switch to category management required not only new skills but also a new attitude.
Questions:
1) The reengineering efforts of P&G focused on the business process system. Do you think other processes, such as the human system, or other managerial policies need to be considered in a process redesign?
2) What do you think was the reaction of the brand managers, who may have worked under the old system for many years, when the category management structure was installed?
3) As a consultant, would you have recommended a top-down or a bottom-up approach, or both, to process redesign and organizational change?
4) What are the advantages and disadvantages of each approach.
CASE STUDY : 3
International Case : The Restructuring of Daimler-Benz
In a 1996 address to stockholders and friends of Daimler-Benz, CEO Jurgen Schrempp reviewed the position of the diversified company. He started by saying “1995 was a dramatic year in the history of Daimler-Benz.” It was also a year that the board of management made a major break with the past.
Daimler-Benz, with more than 300,000 employees worldwide, consisted of four major groups: The first, by far the biggest and most successful group, was Mercedes-Benz with about 200,000 employees. It is best known for its passenger cars and commercial vehicles. The second was the AEG Daimler-Benz industries in the business of rail systems, microelectronics, heavy diesel engines, energy systems technology, and automation. The third was the Aerospace Group in the business of aircraft (the company has a more than one-third interest in the Airbus consortium), space systems, defense and civil systems, and propulsion systems. Finally, there was the Inter Services Group consisting of systemshaus, financial services, insurance brokerage, trading, marketing services, mobile communications services, and real
estate management.
Daimler-Benz went through various development phases. From 1985 to 1990, it diversified into aerospace and electrical engineering. The aim was to become an integrated high-tech group. This diversification was further consolidated in the next phase that extended from 1990 to 1995. Under the leadership of Schrempp, the core business was redefined and the strategy refocused.
A 1995-96 portfolio review showed the need for refocusing on what the company could do best. Top management reevaluated its strategies and its core businesses based on economic criteria and the strategic fit of the various activities. It became clear that the company’s strengths were in car manufacturing, the truck business, and the railroad sector. Mercedes Benz, for example, had a strong competitive position with its cars and trucks in Europe, North America, and Latin America. Vans were also relatively strong in Europe, and buses had a good competitive position in Latin America. Based on this analysis, the strategies for potential growth were through globalization and the development of new product segments.
In 1996, top management reassessed the company’s position and its 1995 unsatisfactory results from its operations. It was discovered that the company was exposed to currency fluctuations that affected profitability. The company’s image was also blurred because of the ventures into many different kinds of industries. The management board decided to cut its losses and chart a new direction for the company, with greater emphasis on profitability. The organization structure was tightened and certain businesses were divested. In fact, policy decision from an earlier period were reversed. The unprofitable AEG Group and the Dutch aircraft manufacturer Fokker did not receive financial support. Since both the Dutch government and Daimler-Benz withdrew support, Fokker filed for bankruptcy. Although these and other drastic decisions helped reduce the 1995 financial losses, the company’s goal was not to emphasize maximizing short-term profitability but to work toward medium- and long-term profitability.
A number of other managerial decisions were made to achieve the ambitious goals of reducing costs and improving profitability. Employees close to the operations were empowered to make decisions necessary to carry out their tasks. The organization structure was simplified and decentralized so that organizational units could respond faster to environmental changes. Moreover, the new organization structure was designed to promote an entrepreneurial spirit. Control was exercised through a goal-driven, performance-based reward system. At the same time, the new structure was designed to promote cooperation. In 1997, the board of management restructured and integrated the Mercedes-Benz Group into Daimler-Benz. Consequently, Mercedes-Benz’s chief, Helmut Werner, who had been given credit for a successful model policy, resigned from the company.
Questions:
1) What is your assessment of Daimler-Benz’s operations in many different fields?
2) Should the various groups operate autonomously? What kinds of activities should be centralized?
3) Daimler-Benz is best known for its Mercedes-Benz cars. Why do you think Daimler bought AEG in the first place and why did it venture into the Aerospace and Inter Services businesses?
4) Given the apparent mistakes in acquiring non-automotive businesses, what should Jurgen Schrempp do now?
CASE STUDY : 4
International Case : Global Car Industry
How the Lexus Was Born-and Continued Its Success in the United States, but will Lexus Succeed in Japan?
One of the best examples of global competition is in the car industry. As the Japanese gained market share in America, U.S. car makers required the Japanese to self-impose quotas on cars exported to the United States. This encouraged Japanese firms not only to establish their plants in the United States but also to build bigger and more luxurious cars to compete against the higher-priced U.S. cars- and the expensive European cars such as the Mercedes and the BMW.
One such Japanese car is the Lexus, by Toyota. This car is aimed at customers who would like to buy a Mercedes or BMW but cannot afford either. With a sticker price of $35,000, the Lexus is substantially less expensive than comparable European imports. In 1983, Toyota set out to develop the best car in the world-measured against the Mercedes and the BMW. The aim was to produce a quiet, comfortable, and safe car that could travel at 150 miles per hour and still avoid the gas guzzler tax imposed on cars getting less than 22.5 miles per gallon. This seemed to be an idea of conflicting goals: cars being fast seemed irreconcilable with cars being at the same time fuel-efficient. To meet these conflicting goals, each subsystem of the car had to be carefully scrutinized, improved whenever possible, and integrated with the total design. The first version of the 32-valve V-8 engine did not meet the fuel economy requirement. The engineers applied a problem-solving technique called “thoroughgoing countermeasures at the source.” This means an attempt to improve every component until the design objectives are achieved. Not only the engine but also the transmission and other parts underwent close scrutiny to make the car meet U.S. fuel requirements.
Toyota’s approach to achieving quality is different from that of German car manufacturers. The latter use relatively labor-intensive production processes. In contrast, Toyota’s advanced manufacturing technology aims at high quality through automation requiring only a fraction of the work force used by German car makers. Indeed, this strategy, if successful, may be the secret weapon to gain market share in the luxury car market.
Questions:
1) Prepare a profile of the potential buyer of the Lexus.
2) What should Mercedes and BMW do to counteract the Japanese threat in the United States and Europe?
3) Why has the Lexus model been very successful in the U.S. but has not been marketed in Japan? (Suggestion: Review the frequency of repair records of luxury cars. Also talk to Lexus dealers or Lexus owners).
4) Do you think Lexus will succeed in Japan? Why or why not?
