978-1305405769 Appendix N Part 2

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14 Appendix: Role-Play Exercises

Jerry Abacarian, Vice President of Operations

(Only the student assigned to this role reads this page)

Jerry Abacarian, another holdover from the old Videopolis days, is the vice president of operations for

VWeb. Jerry came to the United States from the Middle East in search of riches and cherishes the

newfound successful American lifestyle. Jerry has come a long way from humble beginnings as the

child of a goat farmer. Jerry is married and has two teenage daughters. The girls attend the most

prestigious private school in the community. Jerry hopes that the investment in their primary education

will pay off because the family has not saved enough money to send both girls to college. Jerry spares

no expense for the family, buying the best quality merchandise. A recent acquisition is a Ford Mustang

he bought on credit through a financing company. Jerry’s family has never seen in anything that could

be considered middle class and looks down upon people who do not meet their social standards. Now

approaching middle age, Jerry worries about what the future holds for a person who has really not done

an effective job of saving for either the future or retirement.

As an upper manager at VWeb, Jerry was promised future benefits such as stock options and a

dramatically increased salary. Jerry feels betrayed by the founders, believing they sold Videopolis

employees out for a fast buck and left them stuck with inadequate salaries and minimal chances for

attaining a higher financial status. Thus, Jerry’s loyalty to the new company is in question, and Jerry is

looking for any way to obtain the promised compensation. The only means for Jerry to reach the

expected compensation level is to achieve the new objectives and, hopefully, receive the huge promised

bonus.

Since the merger, Jerry’s job has become increasingly demanding as the pressure of the day–to-day

operations has increased dramatically. In Jerry’s opinion, the company is attempting to book too many

sales, creating unrealistic daily and quarterly objectives, and forcing the staff to work harder than ever.

Many key subordinates and lower-level employees have already left the company for more stable and

rewarding work environments, putting key projects on hold. With the loss of these individuals, the

operations department is having trouble retaining competent employees. The high turnover and

generally lower level of knowledge among the remaining work force mean that many of the repetitive

and simple tasks, which were always taken for granted in the past, are no longer getting done. For

example, employees are being told to upload videos onto their digital file sharing site without

previewing them for copyrighted material, as was standard practice at Videopolis. Employees are

supposed to follow orders because, according to top management, they will never understand what they

are supposed to do anyway.

Before leaving for home, late as usual, Jerry received an e-mail from M.J. Marshall, the chief legal

counsel, asking Jerry to attend a meeting with the executive staff. The e-mail did not specify the

meeting’s agenda but hinted about some potential legal liabilities that VWeb may face. Jerry isn’t

aware of any possible legal problems, but welcomes the opportunity to meet with the executive staff.

Sam Arnold apparently also wants to talk about employee issues at the meeting, and Jerry hopes this

means the end of the hiring freeze, so that he can bring in some more qualified people and give his

overworked staff some relief. Things simply cannot continue as they have for much longer.

Appendix: Role-Play Exercises 15

Sam Arnold, V.P. of Human Resources

(Only the student assigned to this role reads this page)

Sam Arnold was hired in 2010 as the new vice president of human resources after the previous V.P.

quit when, after the merger, the corporation failed to address promised pay raises and stock options.

This management position was the only one to be filled after the hiring freeze went into effect. CEO

Alex Rockwell hired the inexperienced Arnold instead of a seasoned HR manager in an effort to reduce

costs.

Sam graduated from Ohio State University in 2008. After two years at a pharmaceutical firm, Sam was

ready for a change. Sam was familiar with the company after using its services, and was strongly

interested in working for a high-tech firm. Sam was not promised the same stock options, raises, and

bonuses that other employees were, but Sam had other motives for taking the position. Sam felt that

VWeb represented an excellent opportunity to learn about, and ease into, the high-technology industry.

After two years with this corporation, Sam plans to enroll in the Computer Information Systems

Masters program at Colorado State University.

A month into the new job, Sam began to understand why the former V.P. quit. Recently, Sam has been

completing several employee termination packets every month. Most are former Videopolis employees

who cite broken promises as their reason for quitting. It seems to Sam that VWeb is hemorrhaging

employees, and the business is really starting to suffer from the high turnover. The company simply

cannot continue at this rate without lifting the hiring freeze.

In addition to the high turnover, Sam recognizes that many employees are disenchanted, demoralized,

and ready to quit. The climate at VWeb has become negative, and many people dread coming to work.

Employees often speak of questionable management practices, possible legal issues, and a nearly

desperate need for better compensation. Most of these complaints have come from employees in

marketing and sales and the operations divisions. As the vice president of human resources, Sam hears

their complaints and understands the situation better than anyone.

Recently, M.J. Marshall, the company’s chief legal counsel, sent out e-mails to all top managers calling

a meeting to discuss possible copyright infringement issues. Unfortunately, Sam feels that VWeb’s

problems aren’t that simple. Accordingly, Sam has contacted the CEO, Alex Rockwell, to add human

resources issues to the meeting agenda. Although copyright and privacy issues are important, Sam feels

that the people issues warrant greater attention because, without satisfied employees, nothing will get

accomplished.

16 Appendix: Role-Play Exercises

[SAMPLE STUDENT REPORT]1

TO: ALEX ROCKWELL (Annie Hodges)

FROM: M.J. MARSHALL (LouAnn De Coursey)

RE: MEETING 2/1/XX

Alex,

After meeting with Sam, Jerry, Bryce, and you on Thursday, VWeb’s positions became much clearer,

Appendix: Role-Play Exercises 17

• HR is working on a job description to create tech support personnel to control the systems at job

sites. We will change the pricing structure to keep the same profit margins, but the customer will

be receiving better customer service.

In regard to the privacy issues:

• Before we go further on trying to expand the DigiV Service to mobile devices, we must work

out any gaps in our security procedures that could allow for cyberhacking.

• We will hire an Internet security company to help us develop the most updated security systems

so that our clients’ information will be protected.

• We are investigating our system to see if there have been any security breaches. If a breach is

found that could have exposed sensitive client information, we will notify those clients at once.

There are a few other loose ends we need to tie up in to ensure compliance, and the legal team is

reviewing those issues right now.

We also need to schedule the company meeting ASAP to start changing the negative climate.

Let’s schedule the meeting for later this afternoon or tomorrow to set a timeline and delegate jobs. One

other topic we need to discuss is the Federal Sentencing Guidelines for Organizations. Under these

guidelines we need to evaluate several things including our standards regarding misconduct (consistent

enforcement, training, systems to report), our communication with the staff, our mission/ethics

statement, as well as looking at our levels of oversight and how authority is being delegated. I think we

need to create the position of an Ethics Officer either within the HR department or the legal department,

or even a team of two from both departments to develop our responses, monitor the guidelines, and

create ways to improve our systems. We might also want to consider hiring a Privacy Officer with

knowledge of digital systems to ensure client information is protected. I will have a report on where we

stand currently on the guidelines at the meeting. We need to have a system with standards in place by

the employee meeting, and we will need to have the systems in the employee handbook. This is

something we cannot ignore!

CC:

Sam Arnold (Lara Bruger)

Jerry Abacarian (Shannon Quinn)

Bryce Kerwin (Jeff De Weese)

Appendix: Role-Play Exercises 19

PART 6

Redrivershops.com***

Background

RedRiverShops.com (RRS.com) is a leading online retailer. This e-commerce firm has more than 10

million customer accounts in twenty countries with sales of (US) $900 million. The company offers

products in various categories including computers, software, music, movies, electronics, and sports

equipment. For example, RRS.com is the leading online retailer of golf and tennis equipment. The firm

has 2 million feet of warehouse and distribution space to store and deliver merchandise to customers.

RRS.com is organized into three segments: allied electronics, integrated sports, and business–to–

consumer auctions. The business-to-consumer auctions enable registered and approved businesses to

offer a wide variety of products in an auction format, similar to eBay’s online auctions.

RedRiverShops.com has yet to show a profit due to the high costs of building a distribution system,

designing and updating a website, implementing customer transaction and service processes, and

creating brand awareness through advertising. It also faces intense competition from Amazon.com and

eBay. These successful firms have not merged with an outside company or developed traditional retail

operations. Although RedRiverShops.com currently has $500 million in cash available for operations, it

is losing about $50 million a quarter. Because acquiring additional financing has become increasingly

difficult, RRS.com needs to break even in the next two and a half years. As a publicly held corporation,

the firm has been criticized for operating in the “red” for too long, and a number of investment firms

recently downgraded RRS.com’s stock from a “buy” to a “hold.”

The board of directors is meeting to consider a proposal from the highly visible chief executive officer,

president, and founder of RRS.com. The CEO has been able to develop an opportunity for a possible

merger with a major developer of traditional shopping malls. Although not yet sure the merger is the

best strategy for RRS.com, the CEO views the meeting with the board of directors as the most

important aspect in the decision–making process. The CEO respects the board’s ability to make the right

recommendation because the members attending the next meeting are company executives with much

experience and knowledge in their respective areas of business.

A key concern is the merger of distribution functions. The supply chain for RRS.com uses large

company warehouses, but also uses a drop shipper approach by not taking possession of products that

are shipped directly from the producer. The shopping mall sourcing of products will be very different,

with retailers needing to maintain and display their inventories. On the other hand, if retailers also use

the RRS.com website, they can tap into RSS.com warehouses and its drop shipper approach to

fulfillment. The integration of distribution and other marketing functions is a key consideration in the

merger decision. Questions relate to the advantages, disadvantages, or even the feasibility of merging

these two organizations.

The proposal to be discussed at the board meeting is a merger of RRS.com with American Shopping

Mall Properties (ASMP), a Houston-based real estate firm that owns 95 shopping malls in 28 states.

ASMP is very profitable with $600 million in rental income yielding a bottom-line profit of $200

million last year. Merging a popular e-commerce portal with a successful shopping mall operator could

create the ultimate “clicks-and–bricks” marriage. RRS.com could provide website exposure for

shopping mall tenants who, in many cases, have well-established national brands. A joint venture with a

mall tenant that markets heavy, durable products, such as washing machines and dryers, could provide

an opportunity for RRS.com to market products that could be delivered and serviced by the mall store.

20 Appendix: Role-Play Exercises

ASMP malls could even be co-branded as RRS.com malls, creating a seamless flow between online

buying and receiving and returning products in the mall.

It is time for the RRS.com board of directors to meet, discuss, and then approve or disapprove the

proposed merger. You, as a member of the board of directors, have been assigned a functional role with

unique information that can be used in the discussion.

Appendix: Role-Play Exercises 21

Vice President of Communications

Your skills at communication have helped RRS.com become the proven technology leader. Because of

your leadership, the company has developed an easy-to-use search engine and the most secure payment

features available in e-commerce. In addition to the U.S. website, the company operates three

internationally focused websites for Japan, the European Union, and China. With the most innovative

technology in the industry, RRS.com has the Internet platform to expand into new product lines through

relationships with strategic partners. The vast computer technology and information systems developed

by RRS.com have already allowed the company to sell products through co-branded (both RRS.com

and a retailer or product manufacturer brand name) sections on the RRS.com website. In recent years,

the company has introduced features to the e-commerce site to compete with Amazon. RSS.com has

built in a recommendation engine that recommends new products to visitors based upon previous

purchases. The company allows buyers to post product reviews directly onto the site. You also

frequently use Facebook and Twitter to post promotional content and company updates as well as

answer customer concerns.

You are concerned about the integrity of the system and the need to add additional software and

hardware to upgrade the network infrastructure to accommodate increased traffic from a merger.

Without these upgrades, the system could face interruptions, slower response time, and delays. Because

all the firm’s equipment is at one leased facility in Houston, floods, fire, or similar events could destroy

the system. Possibly of greater risk are computer viruses, electronic break-ins, and other events that

could prevent servicing customers. Advancing technology and the resources needed to maintain and

upgrade the websites represent a significant concern.

In addition, you are concerned about RedRiverShop’s image and its possible dilution as a result of the

merger with the “bricks-and-mortar” shopping center. You have gone to great lengths to promote

RRS.com as an online-only entity and you continually reinforce this commitment both internally and

with investors. Order processing and inventory management are also concerns if the two companies

choose to merge. Your company has built an efficient order processing system for its RRS.com website.

However, order processing involving retail stores would be an entirely new area requiring a complex

communication system that you would have to develop. So far your experience has dealt mainly with

end consumers ordering through your site, not channel members requesting inventory shipments. If this

merger occurs, it will require a great deal of thought as to the most efficient way to communicate with

channel members.

Finally, you will have to work closely with the IT department to adapt RSS.com’s Internet technology

system to account for the new shopping malls. RSS.com will need to adapt the system to integrate its

website with its retail distribution system. If the two firms merge, RSS.com will have to combine online

retailing with the retailing done in its stores. Although this would take an extensive amount of time,

many other companies have created successful IT systems to link their websites and their stores. Their

big competitor Bass Pro Shops is one company that has had success in this area.

22 Appendix: Role-Play Exercises

President, Chief Executive Officer, and Founder

Along with your role as president and CEO, you have been chairman of the board since you founded

RedRiverShops in 2000. You have been successful in developing a leading e-commerce company that

has the resources to pursue opportunities for forming new relationships. Through your leadership, the

market value of RRS.com stock has reached $12 billion. Because the market value of ASMP is $2.5

billion, RRS.com could acquire ASMP through a stock-for-stock trade. This would result in a 21

percent dilution in RRS.com’s stock shares. The company would also acquire almost $3 billion in

ASMP debt because most shopping mall real estate is financed and therefore carries a heavy debt. The

bottom line is that it is financially feasible for RRS.com to merge with ASMP without any cash

requirements. Perhaps the greater concern is the long-run success of the merger.

You are particularly concerned with the significance and impact of the two different marketing

channels. In order to be cost efficient, the channels must be able to create utility and facilitate exchange

efficiencies. RRS.com has had great success in maintaining time utility, i.e. getting products to

customers within a two week time period. But will it remain as efficient after the merger? As an e–

commerce firm, RRS.com did not have to worry as much about place utility, or having products

available at physical locations. By adopting physical locations, RRS.com will have new inventory

concerns in which it will have to maintain a sufficient amount of inventory at specific stores.

Finally, the merger will require RSS.com to make channel alliances to facilitate exchange efficiencies.

If RSS.com merges, it will likely choose to adopt a dual distribution system, or two or more marketing

channels to deliver products to customers. One channel would be its e-commerce channel that it

currently maintains. The other would be an expanded channel that would include retailers (through its

malls) as well as the possibility of additional channel members. Because it will be expensive to adopt

multiple distribution channels, RSS.com will need to work hard to make these dual distribution

channels cost efficient.

A number of advantages and disadvantages could result from the proposed merger. The new company

could be profitable and some cash requirements for building warehouses and developing inventory

could be reduced. RRS.com could increase traffic through websites developed for the mall stores. It

could charge a fee for sales at the site, and it might have its name and logo on mall stores to increase its

customer visibility. On the other hand, the CEO will lose some control over the management of the

company and RRS.com will be less focused as an e-commerce company. Managers will have to spread

their time over traditional as well as e-commerce operations. Taking on an additional $3 billion in debt

is also a key concern. You are also concerned about investors’ perceptions of this move. Through the

issuance of new stock, you see this as a possible way in which to raise additional capital. Bu, you must

first convince current and potential investors of the company’s commitment and faith in this extension

of branding, distribution, and image. One other opportunity that you have been pondering is the

possibility of opening RRS branded stores that carry the same merchandise and utilize the same pricing

strategy as the online operation.

Appendix: Role-Play Exercises 23

Vice President of Operations and General Manager

(only the student assigned to this role reads this page)

You have been with the company for one year and were hired to streamline costs. Although RRS.com

does not own any real estate, the company has been effective in leasing office facilities in Houston as

well as leasing 2 million square feet of warehousing and fulfillment operations space for the company’s

products. In addition, infrastructure has been established to handle customer orders, supplier

relationships, inventory management, and efficient shipment of products based on ordering criteria.

There has been uninterrupted operation of the websites and transaction processing systems. On the

other hand, continued growth will place a significant strain on management, operational, and human

resource systems.

Currently, there are challenges in understanding customer demand and purchase patterns and meeting

faster product life cycles. Significant risks are associated with product seasonality, accurately predicting

sales, and the ability to negotiate terms with manufacturers, distributors, and other vendors. For

example, some of the products sold through the site cannot be shipped overseas during to contractual

limitations placed on the company by the company’s vendors. The ability to expand leased distribution

operations and to maintain flexibility in the distribution of logistics systems is difficult due to the

inability to predict sales increases. In fact, distribution centers are currently underutilized and operating

at 60 percent of capacity.

The inventory needed to supply physical retail locations might take care of this excess capacity at your

distribution centers. This merger would have the chance to create some operational efficiencies as well.

American Shopping Mall Properties can make use of RSS.com warehouses and its unique drop shipper

approach. On the other hand, the merger would require RSS.com to change how it handles inventory

management and materials handling. While its online store requires RSS.com to maintain enough

inventory to fill orders, it does not have to worry about making sure that the right amount of product is

delivered to the right stores in the right quantities. This merger would require RSS.com to take on these

additional responsibilities. You realize there are many more chances for individual stores to undergo

stockouts, or shortages. RSS.com will need to ship out more products to different locations, and as Vice

President of Operations and General Manager, it will be your responsibility to oversee the handling and

transportation of these goods to individual stores. This increased responsibility is exciting but will also

introduce a number of new challenges you must address. You are uncertain how all these functions will

be managed.

Finally, competition with online and traditional stores is projected to intensify. Internet technologies

foster quick comparison of prices and could reduce operating margins. Traditional retail stores may

become more aggressive competitors with their own websites and strategic partnerships. However, you

are skeptical that the opposite—expanding from a strictly e-commerce platform to bricks-and-mortar

stores—will work the same way. You feel that investing more in Internet technologies and website

features could make RSS.com a more profitable enterprise and help it to compete against its rivals.

24 Appendix: Role-Play Exercises

Vice President of Marketing

(only the student assigned to this role reads this page)

As vice president of marketing, you helped establish RRS.com as the number one online store for sports

and fishing equipment. Customer Reports, the most recognized source on rating e-commerce, has rated

RRS.com as the best online store for sports, fishing, and consumer electronics. Customers around the

world are choosing RRS.com for online business–to-consumer auctions for a variety of products.

RRS.com has maintained low competitive prices through low product gross margins. Currently, its

major competitor in the sports and fishing area is Bass Pro Shops, which maintain their own stores.

Bass Pro Shops have more complete product lines in sports equipment but do not offer consumer

electronics. Consumer electronics is a highly competitive industry, and RSS.com faces intense

competition from Best Buy and Amazon.com.

Through centralized distribution warehouses, RRS.com can physically stock all products the company

needs in its inventory. Through joint agreements with UPS, FedEx, and the U.S. Postal Service,

efficient delivery of products is maintained. Through advertising, RRS.com has established a brand

name that has considerable value on the Internet. Overall, the company has an excellent marketing

program driven by marketing research and a focus on customer value. The marketing strategy is

focused on strengthening the brand name, increasing website hits, and building customer loyalty and

repeat purchases. With strong competition, RSS.com has a proven track record of building customer

relationships.

American Shopping Mall Properties has shopping centers across the nation ranging from regional

shopping centers (large department stores and deep product mixes), superregional shopping centers

(widest and deepest product mixes), and lifestyle shopping centers (open-air shopping centers with

upscale specialty, dining, and entertainment stores). These various types of shopping centers are

beneficial because they attract a diverse target market from all walks of life. However, maintaining such

diverse product mixes will be challenging from both a marketing and distribution perspective.

Each type of center will require different marketing strategies. You will have to consider how to

position the retailers with strategies that will serve an underserved market and distinguish them from

others in the minds of consumers. You are wondering if it would be a better idea to market each variety

of stores with their own brand image, or market them as RSS.com branded stores to create a cohesive

brand image. Although the latter would connect the various mall stores with the RSS.com brand, you

fear that the different stores and their various product mixes might confuse consumers and cause

RSS.com to lose its distinctive brand identity that it has worked so hard to build.

In addition, you realize that your RRS.com credit card program has been responsible for increasing

sales. The average purchase on an RRS.com credit card is 25 percent higher than the average for all

other major credit cards. You are concerned about extending credit terms with the additional stores

through the potential mall alliance. One other area you have been contemplating is how to relate your

pricing strategy to that of the other stores you would become involved within the malls. Do you utilize a

low margin, high volume pricing strategy? If so, how do you improve the overall profitability of the

company and generate positive cash flow?

Appendix: Role-Play Exercises 25

Chief Financial Officer

RRS.com has not made a profit and has incurred significant losses since it started doing business in

2000. As of July 31, 2011, RRS.com has accumulated losses of $643 million. Losses may be

significantly higher in the next year because RRS.com must continue to invest in marketing,

information technology, and operating infrastructure. Aggressive pricing, including meeting

competitors’ advertised online prices, has resulted in low gross margins on products. Current growth

and pricing strategies will result in proportionately higher losses as sales increase. In addition,

RRS.com has incurred significant debt totaling approximately $1.35 billion. If the company is unable to

acquire additional funds through financial or stock markets, it could face serious liquidity problems. If

cash flow is inadequate to meet service debt obligations, a major financial crisis and drop in stock value

could occur. In addition, RRS.com cannot accurately forecast revenues and may experience significant

fluctuations in operating costs.

Acquiring profitable ASMP shopping malls could decrease losses and help develop a more stable

financial condition. However, even traditional shopping malls are subject to seasonality, business

cycles, and increased competition. In addition, RRS.com would increase its debt from $1.35 billion to

$4.35 billion in the merger. The newly merged organization would be under considerable financial

pressure to service debt obligations. Any problems meeting these payments could result in default.

Additional concerns relate to the fact that some of the malls are in less desirable locations within their

metro markets. Trends in “urban sprawl” mean that outlying malls tend to be newer and larger than

those found in downtown areas.

On the other hand, your finance office has discussed a defense of the merger based on the larger

distribution system. You realize that this larger distribution system would give RRS.com the ability to

better negotiate deals with vendors and other channel members. The larger product mix would provide

your organization with a competitive tool. These advantages could allow your company to provide

products and services to your customers more efficiently and cost effectively. However, you also

realize that in order to keep costs lower than your competitors, RRS.com should carefully consider the

marketing channels of its key competitors and see if this larger distribution system will enable the firm

to be more efficient. You plan on bringing this fact up in the next meeting.