978-1259278211 Case 30 Solution Manual Part 2

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Organizational: Other than the initial energy and drive required to start and grow the company

Intangible Resources:

Human: Expert staffing in production areas, company drivers allowed control of distribution

Innovation and creativity: The founders’ background and innovative ability

Reputation: Online hard to tell, but founder Joe Fedele’s success with the brick-and-mortar

Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to

Applying the VRIN concept, FreshDirect did have valuable activities and resources: operations,

outbound logistics, marketing and sales, technology development and general administration all

appeared to provide a competitive edge. The operations and outbound logistics models appeared

Referencing Chapter 4: Intellectual Assets

See the concepts of intellectual capital, human capital and social capital, all of which are

intangible assets that a company such as Apple needs to have in order to compete successfully.

Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation,

Human capital involves the individual capabilities, knowledge, skills, and experience of the

company’s employees and managers. This knowledge is relevant to the task at hand, as well as

Success in retaining human capital could also be attributed to the nurturing of the “social ties” or

social capital. Social capital is a function of the network of relationships that individuals have

Organizational Capabilities:

Specific Competencies or Skills: FreshDirect had an entrepreneurial mindset and experience,

Capacity to combine resources: Innovative product marketing and distribution could have

1. How did FreshDirect compete?

Referencing Chapter 5: Business-Level Strategy

A competitive strategy is linked to the value chain, and supported by intangible assets. Activities

In order to achieve a sustainable competitive advantage, Apple had to assess its ability to contend

with other consumer electronics products companies. The question of how to compete in a given

business to attain competitive advantage requires an assessment of the types of competitive

strategies, including the three generic strategies that are used to overcome the five forces and

achieve a competitive advantage:

●Overall cost leadership

oLow-cost-position relative to a firm’s peers

●Differentiation

oCreate products and/or services that are unique and valued

●Focus strategy

oNarrow product lines, buyer segments, or targeted geographic markets

Generic strategies are plotted on two dimensions: competitive advantage and strategic target. The

Cost Leadership: Because of its innovative relationships with producers and growers, and its

efficient production and distribution systems, FreshDirect had the ability to create a cost

leadership strategy. However, its operational model could be easily imitated, especially by the

Differentiation: The challenge of differentiation is to create a product that is perceived industry

wide as being unique and valued by customers so much so that they will seek it out if not readily

Focus: It’s possible to argue that FreshDirect had a focus strategy with the produce and meat

segment, especially since Ackerman acknowledged FreshDirect did not intend to compete with

Other options firms sometimes pursue include:

Combination of Differentiation and Cost Leadership, Combination of Focus and Cost

Stuck in the Middle? Due to the competitive challenges, especially from the other online grocery

NOTE – ADDITIONAL READING, WEB LINKS:

On the FreshDirect website, click on “Delivery Info” to learn about this operation. At the bottom

of the page, click on “Home Delivery FAQs” for more information:

http://www.freshdirect.com/help/delivery_info.jsp

FreshDirect tries to give the shopper information about key categories such as organic or kosher

items it carries. Visit http://www.freshdirect.com/department.jsp?deptId=orgnat&trk=gnav and

browse categories.

What elements are on FreshDirect’s website that differentiate it from a bricks-and-mortar grocery

shopping experience?

Take a look at the websites for online grocers YourGrocer.com, Peapod, and NetGrocer:

http://www.yourgrocer.com/about_us.asp

http://www.peapod.com/corpinfo/GW_index.jhtml

http://www.netgrocer.com/

and then the website for brick-and-mortar competitor Whole Foods:

http://www.wholefoodsmarket.com/

And finally Amazon.com’s fresh food delivery service entered Los Angeles in 2013, and expects

to expand to 20 other cities in 2014, including New York. See the website at

http://fresh.amazon.com/welcome;jsessionid=35E467669131DFA4D7161902BEDBD5FF

And the story at

http://www.dailytech.com/Amazon+Expanding+Its+AmazonFresh+Online+Grocery+Delivery+S

ervice+/article31693.htm

Which of these do you feel is the major competition for FreshDirect, and why?

2. What competitive dynamics affect FreshDirect now?

Referencing Chapter 8: Entrepreneurial Strategy and Competitive Dynamics

New entry into markets, whether by startups or by incumbent firms, nearly always threatens

Competitive dynamics involves intense rivalry, actions, and responses among similar competitors

vying for the same customers in a marketplace. Intense rivalry among similar competitors has the

potential to alter a company’s strategy. New entry is among the most common reasons why a

Awareness of the threats posed by industry rivals allows a firm to understand what type of

competitive response, if any, may be necessary. Competitive dynamics are likely to be most

intense among companies that are competing for the same customers or who have highly similar

sets of resources. The threat analysis involves:

Market commonality: the extent to which competitors are vying for the same customers in

Resource similarity: the extent to which rivals draw from the same types of strategic

When any two firms have both a high degree of market commonality and highly similar resource

Once attacked, competitors are faced with deciding how to respond – what is their motivation and

capability to respond? Before deciding, they need to evaluate not only how they will respond, but

Once an organization determines whether it is willing and able to launch a competitive action, it

must determine what type of action is appropriate. The actions taken will be determined by both

Strategic actions are major commitments of distinctive and specific resources to strategic

initiatives. An entrepreneurial strategy focused on entering new markets or creating new products

is an example, as is pursuing acquisitions or partnerships. Tactical actions are refinements or

Certainly aggressive actions by Amazon Fresh and possibly Wal-mart or Whole Foods should be

anticipated. What might FreshDirect do to counter these threats? FreshDirect illustrates the role

FreshDirect was going multi-city by opening new production/distribution centers, and using

internal development based on their previous entrepreneurial successes. But FreshDirect needed

to be careful not to grow too fast – the pace was critical. Others had failed with this in the past.

Entrepreneurship involves the creation of new value by an existing organization or new venture

For an entrepreneurial venture to create new value, three factors must be present—an

entrepreneurial opportunity, the resources to pursue the opportunity, and an entrepreneur or

entrepreneurial team willing and able to undertake the opportunity. Entrepreneurs must go

Entrepreneurs need to understand the concept of opportunity recognition: the process of

discovering and evaluating changes in the business environment, such as a new technology,

socio-cultural trends, or shifts in consumer demand that can be exploited. Changes in the external

environment can lead to new business creation, but the discovery of these new ideas is not

An argument could be made that FreshDirect had attempted to create an entrepreneurial

opportunity in its geographic market. Rather than trying, as some did, to convert an existing

brick and mortar business into an online delivery one, FreshDirect focused on the customer, and

FreshDirect’s entrepreneurial founders and current administration understood the opportunities

that existed in the urban environment, and had the ability to acquire the initial financial

Referencing Chapter 10: Creating Effective Organizational Designs

Strategy consists of analysis (setting goals, assessing the internal and external environment of the

firm), formulation (deciding which industries to compete in and how to compete in those

Chapter 10 stresses that organizational strategy has implications for a firm’s structure. Students

Organizational structure refers to formalized patterns of interactions that link a firm’s tasks,

technologies, and people. Structures help to ensure that resources are used effectively in

Structure identifies the executive, managerial, and administrative organization of a firm and

Factors that facilitate the effective coordination and integration of key activities include having a

common culture and shared values, horizontal organization structures, horizontal systems and

An effective organizational design can encourage the flow of information and enhance working

relationships between functional departments and activities. However, achieving the coordination

FreshDirect’s structure was currently functional, based on operational departments. If

FreshDirect expanded, it would have to choose a divisional design in order to handle decision

Referencing Chapter 9: Strategic Control and Corporate Governance

Strategic control involves the process of monitoring and correcting a firm’s strategy and

performance. In a traditional control system, top management formulates strategies and sets

goals. These strategies are implemented, and then performance is measured against the

Contemporary control utilizes two different types of strategic control: informational control and

behavioral control. These two types of control play a role in the formulation and implementation

of strategies. Informational control is a method of organizational control in which a firm gathers

Informational control is concerned with whether or not the organization is “doing the right

things”, while behavioral control is concerned with whether or not the organization is “doing

Chapter 9 emphasizes the importance of aligning both informational and behavioral control

systems with organizational strategy. The information gained from the internal and external

environment is reviewed against the firm’s strategy and goals. If the results are not what was

Both the informational and behavioral components of strategic control are necessary, but not

sufficient, conditions for success. What good is a well-conceived strategy that cannot be

implemented? Or what use is an energetic and committed workforce if it is focused on the wrong

strategic target?

FreshDirect practiced a contemporary control system using informational control via feedback

from the marketplace. It also needed to carefully use behavioral controls to hold employees

Referencing Chapter 11: Strategic Leadership

See the concept of leadership, the process of transforming organizations from what they are to

what the leader would have them become. Leadership is proactive, goal oriented, and focused on

the creation and implementation of the creative vision. This definition implies dissatisfaction

with the status quo, a vision of what should be, and process for bringing about change. Leaders

are change agents whose success is measured by how effectively they formulate and implement a

strategic vision and mission. See Exhibit 11.1. This involves:

●Setting a direction

The interdependent nature of these three activities is self-evident. Consider an organization with

a great mission and a superb organizational structure, but a culture that implicitly encourages

shirking and unethical behavior. Often, failure of today’s organizations can be attributed to a lack

Leaders need to set the direction for the organization by continually scanning the environment to

develop knowledge of all stakeholders, and knowledge of salient environmental trends and

Leaders are responsible for designing the organization: a strategic leadership activity of building

structures, teams, systems, and organizational processes that facilitate the implementation of the

Leaders play a key role in changing, developing, and sustaining an organization’s culture. An

excellent and ethical organizational culture is an organizational culture focused on core

In nurturing a culture dedicated to excellence and ethical behavior, managers and top executives

must accept personal responsibility for developing and strengthening appropriate behavior;

FreshDirect had gone through six CEOs. The constant change in top leadership had to make it

difficult to set a clear direction and nurture a consistent culture. The original make-to-order

philosophy, and the focus on freshness required clear directions coming from a respected role

Referencing Chapter 12: Managing Innovation and Fostering Corporate Entrepreneurship

Innovation involves using new knowledge to transform organizational processes or create

commercially viable products and services using the latest technology, experimentation, creative

For instance: There are “five disciplines” for creating what customers want:

●Identify important customer needs

●Create solutions that fill those needs

●Align the entire enterprise around creating value for customers

●Apple appeared to be able to do all of the above, especially the last one. (Source:

It appeared that FreshDirect had identified important customer needs, and had aligned the

production and delivery enterprise around creating value for those customers. What FreshDirect

Before proceeding, firms must first define the scope of the innovation efforts, and must ensure

A strategic envelope defines the range of acceptable projects. Strategic envelope means a firm-

specific view of innovation that defines how a firm can create new knowledge and learn from an

One way to determine which projects to work on is to focus on a common technology. Then,

innovation efforts across the firm can aim at developing skills and expertise in a given technical

However a firm envisions its innovation goals, it needs to develop a systematic approach to

In defining the innovation scope, a firm should answer several questions:

●How much will the innovation cost?

●How likely is it to actually become commercially viable?

●How much value will it add; that is, what will it be worth if it works?

●What will be learned if it does not pan out?

FreshDirect had showed great discipline in the past keeping its focus on projects that were

specific to the firm’s domain of interest. It appeared that many of the choices already made,

specifically those in the production and packaging facility, and other operational decisions, were

The challenges of innovation involve:

●Choosing when and how to continue to innovate

●The scope and pace of future innovation

Things that FreshDirect had done that appeared to work included partnering with Manhattan

restaurants and chefs to produce one-time restaurant-quality meals and the four-minute meals,

FreshDirect had used industry analysis to analyze their industry’s suppliers, buyers, threats of

new entry, substitutes, rivalries, etc. It had established its position within the grocery industry

However, given the inherent problems with widespread customer acceptance of an online

grocery alternative, especially concerns about product “freshness”, plans to expand beyond their

geographic area, and a “revolving door” of CEOs with possibly conflicting “visions”, could

FreshDirect create profitability as it worked to build market share?

NOTE – ADDITIONAL READING, WEB LINKS:

News in May of 2011 reported yet another new CEO for FreshDirect: “FreshDirect co-founder

Jason Ackerman has been named as the company’s chief executive officer, the online grocery

retailer said Monday. Ackerman’s appointment fills the top role left vacant when Richard

Braddock departed in March, when the British retail chain Wm Morrison Supermarkets made a

$50 million investment in FreshDirect.”

http://supermarketnews.com/Executive_Changes/ackerman_freshdirect_0516/ Ackerman

remains the CEO as of 2015.

A news story from September 2013 announces FreshDirect’s expansion of delivery service to

123 new zip codes, including its first service in Delaware. Deliveries will be made in that area

from a new depot in Philadelphia. See http://supermarketnews.com/retail-amp-

financial/freshdirect-expands-new-markets

Will FreshDirect be successful as it expands the scope of its innovative strategy?