Case Study 1-:

United Biscuits has a long history of successful products, perhaps the most famous being McVities digestive biscuit which was the market leader for many years after its introduction in the 1920s. But now the snack market is dominated by names such as Doritos and Pringles, while the market itself has grown as eating habits have changed. For example, it has been estimated that almost half of all families eat their main meals in front of the television rather than at the table. About twenty years ago United Biscuits identified this trend and started to move out of the traditional biscuit market into ready meals, pizzas and snacks. But by late 1999 United Biscuits was up for sale, having seen its share price fall by half in less than six years. During the same period profits have fallen from over 200 million per year to about 100 million. The company had been operating successfully for over half a century in a demanding market which requires ongoing innovation in terms of products. But lately it seemed to have lost its way. An example is in the crisp market which had grown significantly in the UK during the 1980s and 1990s; while the market shares of Walkers and Procter and Gamble grew dramatically United Biscuits lost 6% market share. United Biscuits was formed by the merger of the Scottish family biscuit maker McVitie and Price with Macfarlane Lang in 1948. Then it acquired smaller rivals such as Crawfords, Carrs and Kemps and ended up with over half the UK biscuit market by volume. United Biscuits could not increase its UK market share by much more without attracting the attention of the Monopolies Commission, so attention was turned to the US. In the early 1970s the number two US manufacturer Keebler (second to Nabisco) was making losses partly due to the Carter price controls. Soon after the acquisition price controls were lifted and Keebler was back in profit. Attention was then turned to Europe, which turned out to be more difficult to enter than the US market. Finding expansion on the international front increasingly difficult attention then turned to diversification. This involved acquisitions of burger bars, chocolate makers and frozen fish suppliers. Some of the brands involved were already famous, including Terrys of York, Callard and Bowser, Wimpy, Pizzaland and Ross Young. At the time United Biscuits approach to financing these acquisitions by equity issue was quite innovative. By 1985 United Biscuits entered into a bidding war with Lord Hanson for the ownership of Imperial Group, which at the time was much larger than UB. However, UB lost out to Hanson, although this may have been a good thing because Imperial Group at that time was a highly diversified conglomerate operating in many areas where UB had no experience. By 1995 Keebler was sold because it had been performing poorly for several years. Some observers argued that this was because of inadequate control from London. In the event the new owners instituted a restructuring programme, merged it with the biscuit maker Sunshine and the value of the company increased from $600 million at purchase to $2.5 billion which is significantly greater than UB itself. By the late 1990s UB was changing direction to focus once more on biscuit brands such as Hob Nobs, Digestives and Jaffa Cakes. In addition in 1998 two non UK biscuit makers were acquired: Stollwerck in Hungary and Delacre in Europe. The intention was announced of selling off the frozen food business. But United Biscuits came under pressure in 1999 to sell off more than the frozen food business, and received an offer of about 600 million for the snack division. Nabisco submitted an offer of 260p per share for the company as a whole but this was rejected as being too low, major shareholders arguing that the company should not sell off its assets piecemeal but should maintain its most famous brands. The architect of UBs development until 1990 was Lord Laing, one of the members of the original family owners; he was responsible for the Keebler acquisition and the subsequent diversification. His latest successor, Mr Van de Walle, has no emotional attachment to the various components of the business and is clearly pursuing a policy of rationalization and restructuring.

Case Study 2-:

The Acme Co scenario is based on a limited liability company which currently produces three products and is investing in the development of three further products. The three products currently on sale are as follows.

1. The long standing Dicer is a high value precision industrial metal cutting tool which is tailored
to meet the requirements of individual customers. Its market has been greatly diminished over the past five years by a new generation of laser based machines. Many of the employees have been with the company for over twenty years and the CEO has rewarded their loyalty by keeping them in a job despite the fortunes of the Dicer. It is felt that its quality is such that it is able to command a premium price.

2. The Tracer is a mass produced measuring tool and Acme acquired it in an acquisition deal
seven years ago.

3. The J-Cleaner is a high powered jet water cleaner which was developed by Acme and went on
the market four years ago. Unfortunately the technology is a little unreliable and efforts are still being made to reduce the warranty return rate. Acme has invested heavily in new product development in the past few years and at the moment is hoping to launch on the market the following. A new book binding machine (Binder) on the market in two years A computer device which will enable astronomers to hook up their telescope to the computer (Astrocomp) in three years An hydraulic lifting system for domestic use (Hydraul) in four years. There is a degree of uncertainty associated with potential markets and costs for all three of these and some risk measures are presented in the report. The company is organised in three divisions but many important decisions are made by the corporate CEO and his team of Marketing manager, Accountant and Operations Director. The following is an extract from a management group meeting called to discuss the annual accounts and associated data; the corporate CEO starts by referring to todays newspaper. THE FINANCIAL TIMES: An Overheating Economy? The past two years have seen the fastest growth in the economy in 20 years, with real GNP increasing by over 4% each year. But there are signs that this is causing extreme inflationary pressures, the unemployment rate has dropped to its lowest level for 12 years, and wage claims are up to 12%.

1. CEO: does this article in the Financial Times have any relevance to us? 2. Marketing Manager: this growing market has had a big impact on sales of the Tracer; we
have ended up with a lot of unsatisfied customers. The J-Cleaner has been growing for some time as a result of our pricing and marketing efforts to increase market share; while sales have increased by about 20% in the past two years the market share has stayed low. Otherwise it does not affect things much.

3. The important thing is where our products are on the life cycle. The Tracer was a cash cow
but seems to have turned into a star. The J-Cleaner is a star because it is also growing. The Dicer is at a difficult stage because it has gone out of fashion, so we should increase the price further to increase our margins.

4. Accountant: I find this marketing talk quite far removed from the business realities. We need
to bear in mind that the wage cost on the Dicer is quite high, so if wages increase by 12% this year we could be in trouble regarding profitability and cash flow.

Look at the losses on the J-Cleaner. We need to reallocate resources from it to the Tracer and the Dicer where we are actually making money.

5. Operations director: we need to take a wider view of things. I have done five forces
analysis of the threats facing us and I reckon that the most important is the fact that we are not using our people properly, given the overtime working on the J-Cleaner and the part time working on the Dicer. In addition I have been examining the value chain, and there are some weaknesses in our processes. For example the high marketing on the J-Cleaner is not paying off in a higher market share.

6. J-Cleaner CEO: my people are working all the hours of the day and night to produce units
which the marketing people cant seem to sell. I dont think you really understand the basis on which the J-Cleaner is sold. We are spending a fortune on product development to limit the damage done to our reputation by warranty returns; so we should put the price up to shift it to a better position in the price differentiation matrix. It is four years since we launched the JCleaner but I feel that the company has not accommodated our different production requirements very well.

7. Accountant: we need to spend more on R&D in general. Our share price has been pretty
steady for the last five years and our market capitalisation is 10 million. Its time we issued shares to finance development rather than taking out loans. The owner equity is currently over 14 million so we should be able to sell shares up to about 4 million in value. 7. Dicer CEO: I dont see why we have to keep on changing everything. In the old days we stuck with what we are good at and made about 15% ROI year in and year out. Now we seem to be all over the place.

8. Tracer CEO: actually I think we are doing the right thing in increasing our portfolio. When the
new products come on stream our risk profile will be greatly improved. We have demonstrated that we can make money in the Tracer market and we can easily carry these skills over to the markets for the Binder, AstroComp and Hydraul.

9. CEO: I dont think the way the planning department set out the risks for the three products is
very helpful. We can simply take the mid point estimate in each case after all, what we lose on one we shall make up on the others by the law of averages.

Case Study 3:
AcmeDigger is a medium sized company producing small mechanical diggers (under the brand name of EasyDigger) with a payroll of 400 and turnover of $200 million. It is currently making profits of $16 million, which represents a return on investment of 10%. The CEO made the following statement at a meeting of the senior management team. I am now ready to present the company strategic plan to you. The small digger market has been static for the past decade and it is expected that it will continue at this level into the foreseeable future. However, the market for small road rollers has been increasing for the past five years and, with continuing favourable economic conditions, we are going to take advantage of this. We currently have 15% of the digger market and, while it would be possible to increase the share which the EasyDigger commands during the current year by additional marketing, we have come to the conclusion that these resources would generate higher returns in the long term by launching a new roller product the EasyRoller. We expect the reputation of our EasyDigger will help to break into the roller market, and confidently expect sales to reach $50 million within two years. We shall build an extension to our current premises, to be completed by the end of this year and be in production within eight months. The cost of the new premises and equipment will be $60 million and we shall have to hire an additional 200 staff. We intend to fund this by paying $20 million from retained earnings, and the Finance Director is certain that his banking contacts will be willing to lend us the remaining $40 million. Because The EasyRoller will share about 70% of components with the EasyDigger we shall be integrating this new product into our existing production system. The existing marketing department will be provided with additional resources if necessary once the new product comes on stream. This Plan has been developed by myself in collaboration with the Finance Director and, as with other operational matters, it will be implemented under the direction of the Production Manager. 1. To what extent does the resource based view of strategy explain the development of the Strategic Plan? 2. How would you characterise AcmeDiggers generic strategic choices?

Three years after the launch of the EasyRoller the CEO of AcmeDigger was becoming increasingly troubled. He now had more time to think since he had restructured the company into two SBUs; he had given the Finance Director the additional responsibility of running the AcmeDigger SBU and had promoted the production manager to be in charge of the EasyRoller SBU. This should have given him breathing space to worry about general strategy, but the immediate problem which the Finance Director had pointed out to him yesterday was the bottom line. From a position of making $16 million profit (10% ROI) AcmeDigger was now losing cash on a monthly basis at an alarming rate. But he had been convinced that the two SBUs were performing well. While the EasyDigger had lost a little market share (down to 13% from 15%), because the market was growing it was still turning over $200 million of business; however, its costs had increased as a result of production integration problems and shortages of components due to demands from the EasyRoller so profit had fallen to $12 million. The EasyRoller had not quite reached its sales target of $50 million, but the EasyRoller manager (who had been the Production Manager before EasyRoller was launched) claimed that the target was speculative anyway and that it achieving sales of $30 million was a success in its own right. The CEO had not been particularly worried that additional labour hiring for the EasyRoller had been 250 rather than 200 as originally anticipated, but now it had turned out that there was a very high turnover rate and the human resources department had reported considerable difficulties with recruitment. As a result productivity was much lower than projected, labour costs were over $12 million per year compared with an expected $9 million and the integration of processes and

components had not gone as well as had been hoped; the result was that costs were still about $5 million more than revenues. The company corporate function had not been changed with the addition of the EasyRoller SBU. The central functions of accounting, human resources and marketing were still handled at corporate level and the CEO had in the past congratulated himself on running a lean organisation, because there had been no increase in the corporate headcount as a result of the expansion. Now he reflected that it was just as well he had not increased the marketing departments budget and had halted all product development or the cash flow situation would have been even worse. It had not been a good meeting with the Finance Director yesterday, who had taken some time off from running the EasyDigger to carry out his corporate duties and had brought some bad news. The original estimate of $60 million investment had been wildly optimistic. The delays in construction and machinery installation had led to an additional $40 million to a total of $100 million. The slow take up in demand meant that operational losses so far amounted to $20 million; it turned out that the bankers were not so friendly as had been hoped and most of the cumulative loan of $100 million had to be raised at a penal rate of interest, so interest payments alone amounted to $10 million. It was no wonder the company was bleeding cash, the Finance Director pointed out; the profits generated by the EasyDigger had been inflated by setting up separate operating accounts for the two products and hence the EasyDigger accounts no longer included corporate salaries. He made a simple calculation: the profits generated by the EasyDigger amounted to $12 million, while the losses on the EasyRoller were $5 million, corporate salaries were $4 million and interest payments $10 million. In a full year that would mean a loss of $7 million so, given that cash reserves had been almost totally depleted in the launch phase of the EasyRoller, it looked like AcmeDigger was in danger of going bankrupt. He also pointed out that the gearing ratio was now 60%, and the chances of raising any more funds were looking remote. If only . if only . if only . if only . . . . . .sales of the EasyRoller had been $50 million, .labour costs had not turned out to be so high, .the integration of production processes had worked, .Something drastic appeared to have gone wrong with implementing the plan.

Case Study: 4: Nike: the trainer faltered

Nike was founded in 1957 by two individuals selling low price high tech running shoes out of the back of a van. In 1972 the company became Nike and the swoosh emblem was born. In 1978 Nike was accused by the Washington Post of providing free shoes to basketball coaches to give to their teams. While Nike had done nothing illegal, its competitors stepped back from player endorsements. At that point Nike acted and signed up everyone it could, thus laying the foundations for future relationships with global stars. By 1988 Nike was the brand leader in the world training shoe market; by 1997 its market share was 33%, while in the huge US market Nike was even more dominant, with a 40% market share. The brand was instantly recognizable everywhere, and has joined the Coca-Cola can and the MacDonalds yellow M as a brand that is instantly recognizable by its logo. It has consistently been at the forefront of technology and design for example it was the first to use Nasas air-sole cushioning system and silver fabrics, and was the first to introduce training shoes for women. But by the end of 1997 things had started to go wrong. In the last quarter of 1997 net earnings slumped by over two thirds, there had been two profit warnings, and over 1000 employees in the US had been made redundant. This had contributed to a slump in morale and the company seemed to have lost its dynamism and leadership. The market Some commentators reckoned that the branded sportswear boom had passed its peak and that the global market was becoming saturated. This was exacerbated by the economic problems in the Far East, which was a significant part of the total market. Training shoes are to some extent a fashion item and, as such, are subject to changes in preferences; by 1997 there had been a significant change in taste towards brown shoe goods, which are hybrid training/walking shoes. By 1997 Rockport, a brown shoe maker, had sales of $500 million. In fact, sport and fashion are becoming increasingly intertwined and the sportswear market is now worth about $5 billion per year. Some superstores were obtaining cheap supplies of Nike shoes (on the so-called grey market) and selling them at a substantial discount. This was undermining Nikes brand image of premium price and quality. The company Nike had come in for some bad publicity regarding the working conditions of its many employees in Asia. There were reports of very low pay and extremely poor and repressive working conditions. Whether these reports were entirely true is not clear, but they led to widespread disenchantment with the company. Coupled with the layoffs within the US, morale in the company was adversely affected and many employees felt that the company was now so big that it was impossible for individuals to affect its operation. By 1998 it was estimated that Nike had accumulated inventories amounting to $1.5 billion It would appear that the company had not reacted quickly enough to the changing market conditions. In fact, the signs had been appearing for some time; for example, by 1996 Nikes Hollywood division, which places products with celebrities, was having difficulty disposing of trainers; but the Nike market researchers (known as coolbunters) seemed not to have spotted what was happening. Some concern has been expressed that Nike has concentrated too much on fashion shoes and not enough on sports shoes which are worn by athletes and perhaps enhance their performance. In fact, one of the fastest growing Nike products is the football boot which is not a fashion item. Some commentators have pointed out that the brand stretching undertaken by Nike : into clothing and outdoor footwear, for example has not really paid off and this has contributed to the decline in Nikes profitability. What of the future The four year old Nike corporate centre occupies a 75 acre site and has a workforce of about 2500. This is where research and development and design and marketing are carried out. The marketing budget alone amounts to $5.6 billion of which about $4 billion goes on team and individual sponsorship. The R&D effort is producing new products, notably the Alpha line, which are high technology top of the line products which will retail for higher prices than Nikes current products. The Alpha range will include the Air Zoom Citizen, a running shoe with an adjustable metal heel which moulds to your foot, and training shoes that remain cool during use.

There could be scope for a less uniform global approach, for example by developing shoes specifically for the Asian market. It could be that Nike now needs to change its image. This could involve reintroducing the script logo, designing a new logo for the Alpha range and projecting a less strident corporate image.