CaseScenario2:Compliance,Inc.
Compliance, Inc. (CI) conducts clinical human and animal trials for the pharmaceutical
and biotechnology industries. Revenues are split evenly between early and late drug
development services and the firm is a leader in the laboratory technologies needed for
such testing. One of CI’s internal quality managers, Sharon Kline, has approached the
CEO with a new business proposal. She would like to see the firm take one of its
in-house software programs and develop it as a leadingÂedge commercial product for
three specific target markets€medical care providers, payers of medical care, like
insurance companies, and suppliers to medical care providers, like pharmaceutical
companies. The features of the software are easy to use and include electronic
distribution, data harvesting, and robust reporting capabilities. With this software
Sharon believes that medical care providers will be able to collect data to market to and
negotiate contracts with payers or employers, profile performance of individual
physicians or practice sites, identify best clinical practices, generate reports that satisfy
regulatory or accreditation requirements for provider sites, and supply professional
societies with data for influencing payer and government policies. Another target
market, insurance companies and other medical services payers, will be able to use the
software to profile performance of individual physicians or practice sites, identify best
clinical practices, generate reports that satisfy regulatory or accreditation requirements,
and collect data to market to and negotiate contracts with employers. Finally, the
software will allow suppliers to medical care providers to assess how products perform
compared to competitor products, assess outcomes in real-world compared to clinical
trial settings, obtain information on provider-specific practice patterns, determine
whether products are being used correctly, get “face- time” with physicians and HMOs,
obtain information on product switching behavior, offer providers a value-added
service, and meet FDA post-marketing surveillance requirements. CI has never
launched such a product before and, even if successful, software is a very different
product than the clinical trials services it provides now. The CEO must determine how
to build and manage this new business for CI. Sharon Kline approached the CEO of CI
with a business proposal to take an in-house software program and develop it as a
leading-edge commercial product. There is some risk in the idea because CI has never
launched a product before and software is a very different product than the clinical trials
services the company currently offers. This new product, if successful, would be
considered a radical innovation.
CaseScenario2:Compliance,Inc.
Compliance, Inc. (CI) conducts clinical human and animal trials for the pharmaceutical
and biotechnology industries. Revenues are split evenly between early and late drug
development services and the firm is a leader in the laboratory technologies needed for
such testing. One of CI’s internal quality managers, Sharon Kline, has approached the
CEO with a new business proposal. She would like to see the firm take one of its
in-house software programs and develop it as a leadingÂedge commercial product for
three specific target markets€medical care providers, payers of medical care, like
insurance companies, and suppliers to medical care providers, like pharmaceutical
companies. The features of the software are easy to use and include electronic
distribution, data harvesting, and robust reporting capabilities. With this software
Sharon believes that medical care providers will be able to collect data to market to and
negotiate contracts with payers or employers, profile performance of individual
physicians or practice sites, identify best clinical practices, generate reports that satisfy
regulatory or accreditation requirements for provider sites, and supply professional
societies with data for influencing payer and government policies. Another target
market, insurance companies and other medical services payers, will be able to use the
software to profile performance of individual physicians or practice sites, identify best
clinical practices, generate reports that satisfy regulatory or accreditation requirements,
and collect data to market to and negotiate contracts with employers. Finally, the
software will allow suppliers to medical care providers to assess how products perform
compared to competitor products, assess outcomes in real-world compared to clinical
trial settings, obtain information on provider-specific practice patterns, determine
whether products are being used correctly, get “face- time” with physicians and HMOs,
obtain information on product switching behavior, offer providers a value-added
service, and meet FDA post-marketing surveillance requirements. CI has never
launched such a product before and, even if successful, software is a very different
product than the clinical trials services it provides now. The CEO must determine how
to build and manage this new business for CI.
The idea for the software product came about via induced strategic behavior.
CaseScenario1:FeaNot.
Wim Vijkland was trained as an engineer in the Netherlands and, after college, worked
several years in the Chinese operations of Philips Electronics and then Unilever.
Between employers he returned home for several years to complete an MBA from
Tiburg University in the southern Netherlands. His work gave him hands-on experience
with overseas production, and rich sets of contacts in Mainland China and distribution
channels in Europe and the United States. Wim has noted that many small and
mid-sized European and U.S. manufacturers are interested in and would benefit from
the low-cost Chinese production environment. Contrary to external stereotypes, he also
believes that a Chinese factory can produce products that meet the most demanding
technical and quality specifications met by manufacturers in more developed
economies. At the same time, Vijkland understands that “foreigners” are generally
reluctant to manufacture precision products in China for fear that the underlying
proprietary technologies will be bootlegged and sold to competitors or outright copied.
In an attempt to capitalize on this opportunity, Wim quit his job with Unilever and
entered into a partnership with Sulin “Cathy” Liu, a local Beijing entrepreneur with
whom Wim has worked extensively in the past. Cathy has a Ph.D. in physics from
CalTech in California and an MBA from Hong Kong University of Science and
Technology. They have dubbed their partnership FearNot, and organized it as a limited
liability corporation (LLC). Their plan is to set up duty-free manufacturing zones in
which they develop mini-factories that operate under their ownership and production
guidance, while at the same time creating a firewall between the clients’ proprietary
production processes and the open Chinese market. It is the partners’ hope that this
combination of intellectual property protection and low-cost overseas production will
provide U.S. and European firms an incentive to enlist FearNot’s services. The
likelihood of success of FearNot is increased because both Wim Vijkland and Cathy Liu
to have international backgrounds.
CaseScenario1:Abramson’Jewelers.
Abramson’s Jewelers has established a strong niche market in the upscale jewelry store
segment. Abramson’s was founded in 1871, and its current single-store location is
owned and operated by John Wickersham, who bought the firm from its namesake
founders in 1985. Over the last 15 years, Mr. Wickersham has narrowed the company’s
product offering considerably to focus only on high-end watches like Rolex and Piaget,
custom jewelry, and estate jewelry. Mr. Wickersham stresses that this is an appropriate
focus for his business since each of the products lends itself to relationship selling, and
price rarely comes into the discussion. Despite the narrower offering, Abramson’s floor
space has doubled, and clients are intensely loyal to the good taste, design skills, and
personal service level provided by Mr. Wickersham. After evaluating several expansion
options, Mr. Wickersham has decided to open another store in a neighboring city. While
it is likely that some of his existing customers may begin doing business at the other
location, thus lowering sales volume at the original store, Mr. Wickersham sees this as a
desirable increase in the level of service and convenience he can provide his existing
clientele. At the same time, he believes that he will be able to grow the overall business
faster with two locations. He has identified another reputable gemologist, Jill Diamond,
to run the other store and is now considering how to compensate her.The discussion of
agency theory and executive compensation in the chapter suggest that the compensation
system for Jill Diamond should be based on her ability to maximize shareholder wealth
over the long term.
CaseScenario2:YepseTimbeFarms,Inc.
Yepsen Timber Farms, Inc., (YTF) was started around 1933 by Danish immigrants. The
firm’s primary operations were timber harvesting on several thousand acres in Oregon
acquired in part under the Homestead Act, and in part through direct purchase. The firm
was founded, initially as a partnership, between brothers Mogens and John (Jack)
Yepsen. The Yepson brothers were among the first four graduates at Oregon
Agricultural College (now Oregon State University), worked for the forest service and
private industry in Oregon for a number of years, then quit their respective jobs to
manage the forest they had been developing for a number of years. While timber is
considered a low-tech type business, Mogens and Jack were very innovative from the
standpoint that they established “tree farms,” that is, harvesting then replanting acreage
so that it would yield timber on a sustainable basis. At the time, and in certain parts of
the world to this day, timber lands were typically “clear cut” where all the trees were
stripped from a property, then the timber harvester simply moved to another parcel.
This practice left thousands of acres barren, and often damaged valuable animal habitats
and watershed. The brothers also introduced hybrid Pine and Douglas Fir trees that
grew considerably faster than the native forest stock. These factors allowed them to
grow trees that would be ready for market in 25 years, about half the time of that
required to grow native trees. The brothers’ idea about regeneration, care for the
environment, and hybridization defined the YTF business. Never would land be
harvested faster than it could replenish itself, or in a manner that threatened habitats or
watersheds. Eventually, Mogens and Jack passed on and their only surviving children,
Marjorie, Mary Jane, Burton, and Betty inherited the property. Two of these heirs took a
strong interest in further building the portfolio of Oregon properties, and also converted
the holdings to an S-Corp. to allow for the distribution of ownership and earnings to
their own children. Under their guidance, YTF was tremendously successful and
garnered much community acclaim for its sustainable farming practices. Now, the four
siblings are in their 70s and few of their children have expressed much interest in
managing the extensive portfolio of timber holdings. Among those that have expressed
an interest, some are very knowledgeable about forestry, while others have a track
record of incompetence and self-promotion. At the same time, ownership is now spread
among some 40 children, nieces, nephews, and grandchildren of the four siblings. Many
of these individuals’ only interest in YTF is the annual dividend check they receive.One
of the Chapter 12 Key Leadership Actions that stands out in the Case Scenario is
“Sustaining an Effective Organizational Culture.” Both founding brothers Mogens and
Jack infused a culture of innovation and sustainability. As the firm grew, however, and
ownership became spread among 40 family members, that culture became diluted. This
case shows that organization culture cannot be a source of competitive advantage as
organizations grow.
CaseScenario2:Raptec.
Raptec operates in three principal business segments: Direct Attached Storage (“DAS”),
Storage Networking Solutions (“SNS”), and Software. These hardware and software
products are found in high-performance networks, servers, workstations, and desktops
from the world’s leading OEMs, and are sold through distribution channels to Internet
service providers, enterprises, and medium and small businesses and consumers. Since
the time it went public, Raptec has experienced rapid growth and consistently profitable
operations. In early 2002, Raptec announced its plan to spin-off the software segment,
subsequently incorporated as Axio, Inc., in the form of a fully independent and separate
company. Software was Raptec’s most profitable and fastest growing segment. By
mid- 2002 Raptec had completed the initial public offering of approximately 15 percent
of Axio’s stock, and then distributed the remaining Axio stock to Raptec’s stockholders
in a tax-free distribution. Axio’s family of products includes category leaders in
CD/DVD burning, digital photography, and digital video. Axio’s new management team
is composed of Lex Luthor, CEO, and previously the President of New Business
Development for Universal Studios Recreation Group; Karal Kool, COO, and
previously General Manager of Raptec’s OEM Solutions Group; and R. Elliot Maxter,
CFO, and previously corporate controller for Raptec. The interim four-member board of
directors is currently comprised of Raptec senior officers, but the terms of the public
offering require them to step down in 2 months. Thus, Axio will need to construct a new
board, which in turn will be responsible for overseeing Axio’s management and their
compensation.
Raptec would enhance the effectiveness of its board if it appointed a “lead director”
who would be responsible for the board agenda and oversight of nonmanagement board
activities.
CaseScenario1:TheWaltDisneyCompany
The Walt Disney Company was founded as a cartoon studio in 1923 by Walt Disney
and his brother Roy with a
$500 loan from an uncle. In the early 1920s, cartoonist Walt Disney visited New York
to pitch his idea for a cartoon rabbit called Waldo. During that trip, through a
complicated series of events, Disney lost the rights to develop Waldo. On the train-ride
back to California he spoke with his wife about the importance of coming home with
some alternative character. “I can’t come back to our office and tell them I’ve lost
Waldo,” he bemoaned. This hardship inspired Disney to develop a new character,
Mickey Mouse, and release the world’s first fully- synchronized sound cartoon,
“Steamboat Willie” (starring, of course, Mickey Mouse). Disney’s creative genius was
now coupled with a fierce instinct to protect and control his creative output. Never
again would he lose “Waldo.” Consequently, the Walt Disney Company was pushed by
Walt to tirelessly create timeless and universal entertainment, consistently innovate and
take risks to deliver that entertainment, stress a vision of being the provider of choice of
quality family entertainment, and maintain rigorous control over the quality of
customers’ experiences with Disney products and its image. Such a personal passion for
control led the Walt Disney Company into theme parks because Disney did not want
Mickey’s reputation sullied by the dirty, cheap theme parks that littered the land during
those days. All films had to be new and of the highest quality animation (taking a
minimum of five years to create, including hand-painted backgrounds); sequel films
were not tolerated. Walt’s vision and risk taking propensity led him in the early 1960s to
buy 43,000 acres in Florida (now Walt Disney World), betting the company’s future on a
high-risk, uncertain venture. Amidst such a flurry of activity, Walt Disney died just
before Christmas 1966, and the company was literally stopped dead in its tracks. Walt
Disney’s blueprint was being followed to the letter, but no further (Walt Disney World
opened in 1971). No “new” creations were undertaken until 1982, when the company
finally launched such businesses as the Disney Channel, Touchstone, and their home
video business. Had it not been for the appointment of Michael Eisner as Disney’s new
CEO in 1984, the company would likely not have survived its perilous financial
situation and stifled creativity. Eisner returned the company to its roots of family
entertainment and values of quality, fairness, creativity, entrepreneurialism, and
teamwork.The Walt Disney Company had a plan for succession in the event of the death
of Walt Disney. When Walt died before Christmas 1966, the new CEO continued Walt’s
dream and created innovations that allowed Disney to continue along its path to success
with very little interruption.
All of the following complicate the implementation of an international diversification
strategy EXCEPT
a. widespread multilingualism.
b. increased costs of coordination between business units.
c. cultural diversity.
d. logistical costs.
The book The Dyslexic Advantage appeals to a market of educators, people with
dyslexia, their friends, family, and coworkers. This is customer segmentation by factors.
a. demographic
b. socioeconomic
c. psychological
d. consumption
Innovation creates a(n)
a. opportunity for a new product or process.
b. new product or process.
c. commercial product.
d. idea for potential exploitation.
One of the benefits of the integrated cost leadership/differentiation strategy is that it is
less risky than either the cost leadership or differentiation strategies.
a. True
b. False
Shaping and reinforcing a new organizational culture requires all of the following
EXCEPT
a. effective communication.
b. effective performance appraisals.
c. adherence to the firm’s traditional core values.
d. an appropriate reward system.
Many firms outsource the payroll function of paying employees to firms such as ADP.
Payroll is a(n)
a. value-chain activity.
b. operation function.
c. support function.
d. supply-chain function.
Recently, the only type of car available for Anthony to rent on a business trip was a
compact, fuel-efficient Japanese import. Anthony was surprised at the comfort and
performance of the car. He is in the market for a new car and had previously considered
only buying another luxury SUV. Now, he is thinking about the significant cost savings
he would have if he bought the compact vehicle rather than a new SUV. This is an
example of the competitive risk that
a. a competitor’s products can convey a product’s differentiated features to a customer at
a significantly reduced price.
b. a product imitation can cause customers to perceive that competitors offer essentially
the same good.
c. experience can narrow a customer’s perceptions of the value of a product’s
differentiated features.
d. brand loyalty insulates a company from rivalry with competitors.
PorkPride Foods produces hams and other meat products. It owns hog raising
operations. This is an example of a business.a. de-integrated
b. vertically integrated
c. totally integrated
d. horizontally integrated
The more sharing of resources and activities among businesses, the more ________ is
the relatedness of the diversification.
a. linked
b. constrained
c. integrated
d. intense
d. Investments in advertising and image building are made quickly.
Define competitive actions and responses and explain the two types of competitive
actions and responses.
What is a top management team, and how does it affect a firm’s performance and its
abilities to innovate and design and implement effective strategic changes?
CaseScenario2:Raptec
Raptec was incorporated in 1991 and went public on the Nasdaq Stock Market in 1996.
Raptec’s strategy is to become the global leader in innovative storage solutions. Raptec
is an S&P 500 and a Nasdaq Stock Market 100 member. The company’s hardware and
software solutions for eBusiness and Internet applications move, manage, and protect
critical data and digital content. Raptec operates in three principal business segments:
Direct Attached Storage (“DAS”), Storage Networking Solutions (“SNS”) and
Software. These hardware and software products are found in high-performance
networks, servers, workstations, and desktops from the world’s leading OEMs, and are
sold through distribution channels to Internet service providers, enterprises, medium
and small businesses, and consumers. Since the time it went public, Raptec has
experienced rapid growth and consistently profitable operations. In early 2007, the
company announced its plan to spin-off the software segment, subsequently
incorporated as Axio, Inc., in the form of a fully independent and separate company.
Software was Raptec’s most profitable and fastest growing segment. By mid-2007
Raptec had completed the initial public offering of approximately 15 percent of Axio’s
stock, and then distributed the remaining Axio stock to Raptec’s stockholders in a
tax-free distribution.
What risks does Raptec run in spinning off Axio?
Identify the competitive risks associated with cooperative strategies.
Why is it important to identify internal strengths and weaknesses?
CaseScenario2:ERPInc.
ERP Inc. is a leading provider of enterprise integration software (EIS). EIS allows a
firm to connect and integrate processes across all aspects of its business, regardless of
where they are located around the world. ERPI is a product-focused company, whereas
most competitors in its market space, such as Oracle, operate as ‘solutions companies.”
Oracle and Microsoft have begun to devote considerable resources to the development
of and acquisition of products to compete in the EIS space. Despite these recent threats,
one benefit of its product-focused strategy is that ERPI’s proprietary product is
generally recognized as being 200 percent to 300 percent better than competitors’
software. ERPI estimates it will take two to three years for competitors to develop the
capabilities needed to bring a competing product to market. ERPI invests a considerable
percentage of its profits in basic R&D to support its core products. As evidence of this,
among its competitors the firm maintains the largest in-house programming staff
dedicated solely to the development of advanced enterprise integration software.
Installation and related consulting for EIS typically cost between $100 million and $200
million, with the ERPI software component accounting for about 20 percent of the
installed cost (the remaining 80 percent is spent on the actual installation, not counting
the value of the customer’s time). ERPI’s target market consists of the world’s largest
manufacturing and industrial firms, and it currently enjoys a 60 percent market share.
How sustainable is ERPI’s competitive advantage?
Define competitors, competitive rivalry, competitive behavior, and competitive
dynamics.
Describe the industrial organization (I/O) model of above-average returns. What are its
main assumptions? What is the key to success according to the I/O model?
Describe the risks of a differentiation strategy.