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Case Study 1 : Structuring global companies
As the chapter illustrates, to carry out their activities in pursuit of their objectives, virtually all organisations adopt some form of organisational structure. One traditional method of organisation is to group individuals by function or purpose, using a departmental structure to allocate individuals to their specialist areas (e.g. Marketing, HRM and so on ). Another is to group activities by product or service, with each product group normally responsible for providing its own functional requirements. A third is to combine the two in the form of a matrix structure with its vertical and horizontal flows of responsibility and authority, a method of organisation much favoured in university Business Schools.
What of companies with a global reach: how do they usually organise them-
Writing in the Financial Times in November 2000 Julian Birkinshaw, Associate Professor of Strategic and International Management at London Business School, identifies four basic models of global company structure:
The Global Product Division – a product-based structure with managers responsible
for their product line globally. The company is split into a number of global busi-
nesses arranged by product (or service) and usually overseen by their own
president. It has been a favoured structure among large global companies such as
BP, Siemens and 3M.
As Professor Birkinshaw indicates, ultimately there is no perfect structure and organisations tend to change their approach over time according to changing circumstances, fads, the perceived needs of the senior executives or the predispositions of powerful individuals. This observation is no less true of universities than it is of traditional businesses.
Case study questions
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PROVIDE ADVICE TO AN ENTREPRENEUR ABOUT INTELLECTUAL PROPERTY PROTECTION
Locked doors and a security system protect your equipment, inventory and payroll. But what protects your business’s most valuable possessions? IP laws can protect your trade secrets, trademarks and product design, provided you take the proper steps. Chicago attorney Kara E.F. Cenar of Welsh and Katz, an IP firm, contends that businesses should start thinking about these issues earlier than most do. “Small businesses tend to delay securing IP protection because of the expense,” Cenar says. “They tend not to see the value of IP until a competitor infringes.” But a business that hasn’t applied for copyrights or patents and actively defended tem will likely have trouble making its case in court.
One reason many business owners don’t protect their intellectual property is that they don’t recognize the value of the intangibles they own. Cenar advises business owners to take their business plans to an experienced IP attorney and discuss how to deal with these issues. Spending money upfront for legal help can save a great deal later by giving you strong copyright or trademark rights, which can deter competitors from infringing and avoid litigation later.
Once you’ve figured out what’s worth protecting, you have to decide how to protect it. That isn’t always obvious. Traditionally, patents prohibit others from copying new devices and processes, while copyrights do the same for creative endeavors such as books, music and software. In many cases, though, the categories overlap. Likewise, trademark law now extends to such distinctive elements as a product’s color and shape. Trade dress laws concerns how the product is packaged and advertised. You might be able to choose what kind of protection to seek.
For instance, one of Welsh & Katz’s clients is Ty Inc., maker of plush toys. Before launching the Beanie Baby line, Cenar explains, the owners brought in business and marketing plans to discuss IP issues. The plan was for a limited number of toys in a variety of styles, and no advertising except word-of-mouth. Getting a patent on a plush toy might have been impossible and would have taken several years, too long for easily copied toys. Trademark and trade dress protection wouldn’t help much, because the company planned a variety of styles. But copyrights are available for sculptural art, and they’re inexpensive and easy to obtain. The company chose to register copyrights and defend them vigorously. Cenar’s firm has fended off numerous knockoffs.
That’s the next step: monitoring the market-place for knockoffs and trademark infringement, and taking increasingly firm steps to enforce your rights. Efforts typically begin with a letter of warning and could end with a court-ordered cease-and-desist order or even an award of damages. “If you don’t take the time to enforce [your trademark], it becomes a very weak mark,” Cenar says. But a strong mark deters infringement, wins lawsuits and gets people to settle early.” Sleep on your rights, and you’’’ lose them. Be proactive, and you’ll protect them – and save money in the long run.
An inventor with a newly invented technology comes to you for advice on the following matters:
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Zip Zap Zoom Company Ltd is into manufacturing cars in the small car (800 cc) segment. It was set up 15 years back and since its establishment it has seen a phenomenal growth in both its market and profitability. Its financial statements are shown in Exhibits 1 and 2 respectively.
The company enjoys the confidence of its shareholders who have been rewarded with growing dividends year after year. Last year, the company had announced 20 per cent dividend, which was the highest in the automobile sector. The company has never defaulted on its loan payments and enjoys a favorable face with its lenders, which include financial institutions, commercial banks and debenture holders.
The competition in the car industry has increased in the past few years and the company foresees further intensification of competition with the entry of several foreign car manufactures many of them being market leaders in their respective countries. The small car segment especially, will witness entry of foreign majors in the near future, with latest technology being offered to the Indian customer. The Zip Zap Zoom’s senior management realizes the need for large scale investment in up gradation of technology and improvement of manufacturing facilities to pre-empt competition.
Whereas on the one hand, the competition in the car industry has been intensifying, on the other hand, there has been a slowdown in the Indian economy, which has not only reduced the demand for cars, but has also led to adoption of price cutting strategies by various car manufactures. The industry indicators predict that the economy is gradually slipping into recession.
Exhibit 1 Balance sheet as at March 31,200 x
(Amount in Rs. Crore)
Source of Funds
Share capital 350
Reserves and surplus 250 600
Debentures (@ 14%) 50
Institutional borrowing (@ 10%) 100
Commercial loans (@ 12%) 250
Total debt 400
Current liabilities 200
Application of Funds
Gross block 1,000
Less : Depreciation 250
Net block 750
Capital WIP 190
Total Fixed Assets 940
Current assets :
Sundry debtors 40
Cash and bank balance 10
Other current assets 10
Total current assets 260
Exhibit 2 Profit and Loss Account for the year ended March 31, 200x
(Amount in Rs. Crore)
Sales revenue (80,000 units x Rs. 2,50,000) 2,000.0
Operating expenditure :
Variable cost :
Raw material and manufacturing expenses 1,300.0
Variable overheads 100.0
Fixed cost :
R & D 20.0
Marketing and advertising 25.0
Total operating expenditure 1,765.0
Operating profits (EBIT) 235.0
Financial expense :
Interest on debentures 7.7
Interest on institutional borrowings 11.0
Interest on commercial loan 33.0 51.7
Earnings before tax (EBT) 183.3
Tax (@ 35%) 64.2
Earnings after tax (EAT) 119.1
Debt redemption (sinking fund obligation)** 40.0
Contribution to reserves and surplus 9.1
* Includes the cost of inventory and work in process (W.P) which is dependent on demand (sales).
** The loans have to be retired in the next ten years and the firm redeems Rs. 40 crore every year.
The company is faced with the problem of deciding how much to invest in up
gradation of its plans and technology. Capital investment up to a maximum of Rs. 100
crore is required. The problem areas are three-fold.
Mr. Shortsighted, the company’s Finance Manager, is given the task of determining the additional debt that the firm can raise. He thinks that the firm can raise Rs. 100 crore worth debt and service it even in years of recession. The company can raise debt at 15 per cent from a financial institution. While working out the debt capacity. Mr. Shortsighted takes the following assumptions for the recession years.
Mr. Shorsighted prepares a projected income statement which is representative of the recession years. While doing so, he determines what he thinks are the “irreducible minimum” expenditures under
recessionary conditions. For him, risk of insolvency is the main concern while designing the capital structure. To support his view, he presents the income statement as shown in Exhibit 3.
Exhibit 3 projected Profit and Loss account
(Amount in Rs. Crore)
Sales revenue (72,000 units x Rs. 2,35,000) 1,692.0
Variable cost :
Raw material and manufacturing expenses 1,170.0
Variable overheads 90.0
Fixed cost :
R & D —
Marketing and advertising 15.0
Total operating expenditure 1,532.5
Financial expenses :
Interest on existing Debentures 7.0
Interest on existing institutional borrowings 10.0
Interest on commercial loan 30.0
Interest on additional debt 15.0 62.0
Tax (@ 35%) 34.1
Debt redemption (sinking fund obligation) 50.0*
Contribution to reserves and surplus 13.4
* Rs. 40 crore (existing debt) + Rs. 10 crore (additional debt)
Assumptions of Mr. Shorsighted
He goes with his worked out statement to the Director Finance, Mr. Arthashatra, and advocates raising Rs. 100 crore of debt to finance the intended capital investment. Mr. Arthashatra does not feel comfortable with the statements and calls for the company’s financial analyst, Mr. Longsighted.
Mr. Longsighted carefully analyses Mr. Shortsighted’s assumptions and points out that insolvency should not be the sole criterion while determining the debt capacity of the firm. He points out the following :
The management recognizes that the alternative suggested by Mr. Longsighted rests on data, which are complex and require expenditure of time and effort to obtain and interpret. Considering the importance of capital structure design, the Finance Director asks Mr. Longsighted to carry out his analysis. Information on the behaviour of cash flows during the recession periods is taken into account.
The methodology undertaken is as follows :
Assuming a normal distribution of the expected behaviour, the mean expected
value of net cash inflow in adverse conditions came out to be Rs. 220.27 crore with standard deviation of Rs. 110 crore.
Keeping in mind the looming recession and the uncertainty of the recession behaviour, Mr. Arthashastra feels that the firm should factor a risk of cash inadequacy of around 5 per cent even in the most adverse industry conditions. Thus, the firm should take up only that amount of additional debt that it can service 95 per cent of the times, while maintaining cash adequacy.
To maintain an annual dividend of 10 per cent, an additional Rs. 35 crore has to be kept aside. Hence, the expected available net cash inflow is Rs. 185.27 crore (i.e. Rs. 220.27 – Rs. 35 crore)
Analyse the debt capacity of the company.
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CASE – 1 Your Job and Your Passion—You Can Pursue Both!
The 21st century offers many challenges to every one of us. As more firms go global, as more economies interconnect, and as the Web blasts away boundaries to communication, we become more informed citizens. This interconnectedness means that the organizations you work for will require you to develop both general and specialized knowledge—such as speaking multiple languages, using various software applications, or understanding details of financial transactions. You will have to develop general management skills to foster your ability to be self-reliant and thrive in a changing market-place. And here’s the exciting part: As you build both types of knowledge, you may be able to integrate your growing expertise with the causes or activities you care most about. Or, your career adventure may lead you to a new passion.
Former presidents George H. W. Bush and Bill Clinton are well known for combining their management skills—running a country—with their passion for helping people around the world. Together they have raised funds to assist disaster victims, those with HIV/AIDS, and others in need. Jake Burton turned his love of snow sports into an entire industry when he founded Burton Snowboards. Annie Withey poured her business and marketing knowledge into her two famous business ventures: Smartfood and Annie’s Homegrown. Both products were the result of her passion for healthful foods made from organic ingredients.
As you enter the workforce, you may have no idea where your career path will lead. You may be asking yourself, “How will I fit in?” “Where will I live?” “How much will I earn?” “Where will my business and personal careers evolve as the world continuous to change at such a fast pace?” If you are feeling nervous because you don’t know the answers to these questions yet, relax. A career is a journey, not a single destination. You may have one type of career or several. It is likely you will work for several organisations, or you may run one or more businesses of your own.
As you ask yourself what you want to do and where you want to be, take a few minutes to review the chapter and its main topics. Think about your personality, what you like and dislike, what you know and what you want to learn, what you fear and what you dream. Then try the following exercise.
Note: Solve any 4 Cases Study’s
CASE: I Enterprise Builds On People
When most people think of car-rental firms, the names of Hertz and Avis usually come to mind. But in the last few years, Enterprise Rent-A-Car has overtaken both of these industry giants, and today it stands as both the largest and the most profitable business in the car-rental industry. In 2001, for instance, the firm had sales in excess of $6.3 billion and employed over 50,000 people.
Jack Taylor started Enterprise in St. Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that strategy played a key role in the firm’s initial success. Most car-rental firms like Hertz and Avis base most of their locations in or near airports, train stations, and other transportation hubs. These firms see their customers as business travellers and people who fly for vacation and then need transportation at the end of their flight. But Enterprise went after a different customer. It sought to rent cars to individuals whose own cars are being repaired or who are taking a driving vacation.
The firm got its start by working with insurance companies. A standard feature in many automobile insurance policies is the provision of a rental car when one’s personal car has been in an accident or has been stolen. Firms like Hertz and Avis charge relatively high daily rates because their customers need the convenience of being near an airport and/or they are having their expenses paid by their employer. These rates are often higher than insurance companies are willing to pay, so customers who these firms end up paying part of the rental bills themselves. In addition, their locations are also often inconvenient for people seeking a replacement car while theirs is in the shop.
But Enterprise located stores in downtown and suburban areas, where local residents actually live. The firm also provides local pickup and delivery service in most areas. It also negotiates exclusive contract arrangements with local insurance agents. They get the agent’s referral business while guaranteeing lower rates that are more in line with what insurance covers.
In recent years, Enterprise has started to expand its market base by pursuing a two-pronged growth strategy. First, the firm has started opening airport locations to compete with Hertz and Avis more directly. But their target is still the occasional renter than the frequent business traveller. Second, the firm also began to expand into international markets and today has rental offices in the United Kingdom, Ireland and Germany.
Another key to Enterprise’s success has been its human resource strategy. The firm targets a certain kind of individual to hire; its preferred new employee is a college graduate from bottom half of graduating class, and preferably one who was an athlete or who was otherwise actively involved in campus social activities. The rationale for this unusual academic standard is actually quite simple. Enterprise managers do not believe that especially high levels of achievements are necessary to perform well in the car-rental industry, but having a college degree nevertheless demonstrates intelligence and motivation. In addition, since interpersonal relations are important to its business, Enterprise wants people who were social directors or high-ranking officers of social organisations such as fraternities or sororities. Athletes are also desirable because of their competitiveness.
Once hired, new employees at Enterprise are often shocked at the performance expectations placed on them by the firm. They generally work long, grueling hours for relatively low pay.
And all Enterprise managers are expected to jump in and help wash or vacuum cars when a rental agency gets backed up. All Enterprise managers must wear coordinated dress shirts and ties and can have facial hair only when “medically necessary”. And women must wear skirts no shorter than two inches above their knees or creased pants.
So what are the incentives for working at Enterprise? For one thing, it’s an unfortunate fact of life that college graduates with low grades often struggle to find work. Thus, a job at Enterprise is still better than no job at all. The firm does not hire outsiders—every position is filled by promoting someone already inside the company. Thus, Enterprise employees know that if they work hard and do their best, they may very well succeed in moving higher up the corporate ladder at a growing and successful firm.
Attempt All Case Study Case 1 – HOW GENERAL MOTORS IS COLLABORATING ONLINE The ProblemDesigning a car is a complex and lengthy task. Take, for example, General Motors (GM). Each model created needs to go through a frontal crash test. So the company builds prototypes that cost about one million dollars for each car and tests how they react to frontal crash. GM crashes these cars, makes improvements, then makes new prototypes and crashes them again. There are other tests and more crashes. Even as late as the 1990s, GM crashed as many as 70 cars for each new model. The information regarding a new design and its various tests, collected in these crashes and other tests, has to be shared among close to 20,000 designers and engineers in hundreds of divisions and departments at 14 GM design labs, some of which are located in different countries. In addition, communication and collaboration is needed with design engineers of the more than 1,000 key suppliers. All of these necessary communications slowed the design process and increased its cost. It took over four years to get a new model to the market. The SolutionGM, like its competitors, has been transforming itself into an e-business. This gradual transformation has been going on since the mid-1990s, when Internet band width increased sufficiently to allow Web collaboration. The first task was to examine over 7,000 existing legacy IT systems, reducing them to about 3,000, and making them Web-enabled. The EC system is centered on a computer-aided design (CAD) program from EDS (a large IT company, subsidiary of GM). This system, known as Unigraphics, allows 3-D design documents to be shared online by both the internal and external designers and engineers, all of whom are hooked up with the EDS software. In addition. Collaborative and Web-conferencing software tools, including Microsoft’s NetMeeting and EDS’s eVis, were added to enhance teamwork. These tools have radically changed the vehicle-review process. To see how GM now collaborates with a supplier, take as an example a needed cost reduction of a new seat frame made by Johnson Control GM electronically sends its specifications for the seat to the vendor’s product data system. Johnson Control’s collaboration systems (eMatrix) is integrated with EDS’s In graphics. This integration allows joint searching, designing. Tooling, and testing of the seat frame in real time, expediting the process and cutting costs by more than 10 percent.Another area of collaboration is that of crashing cars. Here designers need close collaboration with the test engineers. Using simulation, mathematical modeling, and a Web-based review process. GM is able now to electronically “Crash” cars rather than to do it physically. The ResultsNow it takes less than 18 months to bring a new car to market, compared to 4 or more years before, and at a much lower design cost. For example, 60 cars are now “Crashed” electronically, and only 10 are crashed physically. The shorter cycle time enables more new car models, providing GM with a competitive edge. All this has translated into profit. Despite the economic show down. GM’s revenues increased more than 6 percent in 2002. while its earnings in the second quarter of 2002 doubled that of 2001. Questions: 1. Why did it take GM over four years to design a new car?2. Who collaborated with whom to reduce the time-to-market?3. How has IT helped to cut the time-to-market?
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CASE – 1 Dabur India Limited: Growing Big and Global
Dabur is among the top five FMCG companies in India and is positioned successfully on the specialist herbal platform. Dabur has proven its expertise in the fields of health care, personal care, homecare and foods.
The company was founded by Dr. S. K. Burman in 1884 as small pharmacy in Calcutta (now Kolkata), India. And is now led by his great grandson Vivek C. Burman, who is the Chairman of Dabur India Limited and the senior most representative of the Burman family in the company. The company headquarters are in Ghaziabad, India, near the Indian capital New Delhi, where it is registered. The company has over 12 manufacturing units in India and abroad. The international facilities are located in Nepal, Dubai, Bangladesh, Egypt and Nigeria.
S.K. Burman, the founder of Dabur, was trained as a physician. His mission was to provide effective and affordable cure for ordinary people in far-flung villages. Soon, he started preparing natural remedies based on Ayurved for diseases such as Cholera, Plague and Malaria. Due to his cheap and effective remedies, he became to be known as ‘Daktar’ (Indianised version of ‘doctor’). And that is how his venture Dabur got its name—derived from Daktar Burman.
The company faces stiff competition from many multi national and domestic companies. In the Branded and Packaged Food and Beverages segment major companies that are active include Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products, the major competitors are Baidyanath, Vicco, Jhandu, Himani and other pharmaceutical companies.
Vision, Mission and Objectives
Vision statement of Dabur says that the company is “dedicated to the health and well being of every household”. The objective is to “significantly accelerate profitable growth by providing comfort to others”. For achieving this objective Dabur aims to:
Chairman of the company
Vivek C. Burman joined Dabur in 1954 after completing his graduation in Business Administration from the USA. In 1986 he was appointed Managing Director of Dabur and in 1998 he took over as Chairman of the Company.
Under Vivek Burman’s leadership, Dabur has grown and evolved as a multi-crore business house with a diverse product portfolio and a marketing network that traverses the whole of India and more than 50 countries across the world. As a strong and positive leader, Vivek C. Burman has motivated employees of Dabur to “do better than their best”—a credo that gives Dabur its status as India’s most trusted nature-based products company.
More than 300 diverse products in the FMCG, Healthcare and Ayurveda segments are in the product line of Dabur. List of products of the company include very successful brands like Vatika, Anmol, Hajmola, Dabur Amla Chyawanprash, Dabur Honey and Lal Dant Manjan with turnover of Rs.100 crores each.
Strategic positioning of Dabur Honey as food product, lead to market leadership with over 40% market share in branded honey market; Dabur Chyawanprash is the largest selling Ayurvedic medicine with over 65% market share. Dabur is a leader in herbal digestives with 90% market share. Hajmola tablets are in command with 75% market share of digestive tablets category. Dabur Lal Tail tops baby massage oil market with 35% of total share.
CHD (Consumer Health Division), dealing with classical Ayurvedic medicines has more than 250 products sold through prescription as well as over the counter. Proprietary Ayurvedic medicines developed by Dabur include Nature Care Isabgol, Madhuvaani and Trifgol.
However, some of the subsidiary units of Dabur have proved to be low margin business; like Dabur Finance Limited. The international units are also operating on low profit margin. The company also produces several “me – too” products. At the same time the company is very popular in the rural segment.
CASE: I Managing the Guinness brand in the face of consumers’ changing tastes
1997 saw the US$19 billion merger of Guinness and GrandMet to form Diageo, the world’s largest drinks company. Guinness was the group’s top-selling beverage after Smirnoff vodka, and the group’s third most profitable brand, with an estimated global value of US$1.2 billion. More than 10 million glasses of the popular stout were sold every day, predominantly in Guinness’s top markets: respectively, the UK, Ireland, Nigeria, the USA and Cameroon.
However, the famous dark stout with the white, creamy head was causing some strategic concerns for Diageo. In 1999, for the first time in the 241-year of Guinness, sales fell. In early 2002 Diageo CEO Paul Walsh announced to the group’s concerned shareholders that global volume growth of Guinness was down 4 per cent in the last six months of 2001 and, more alarmingly, sales were also down 4 per cent in its home market, Ireland. How should Diageo address falling sales in the centuries-old brand shrouded in Irish mystique and tradition?
The changing face of the Irish beer market
The Irish were very fond of beer and even fonder of Guinness. With close to 200 litres per capita drunk each year—the equivalent of one pint per person per day—Ireland ranked top in worldwide per capita beer consumption, ahead of the Czech Republic and Germany.
Beer accounted for two-thirds of all alcohol bought in Ireland in 2001. Stout led the way in volume sales and accounted for 40 per cent of all beer value sales. Guinness, first brewed in 1759 in Dublin by Arthur Guinness, enjoyed legendary status in Ireland, a national symbol as respected as the green, white and gold flag. It was by far the most popular alcoholic drink in Ireland, accounting for nearly one of every two pints of beer sold. Its nearest competitors were Budweiser and Heineken, which held 13 per cent and 12 per cent of the market respectively.
However, the spectacular economic growth of the Irish economy since the mid-1990s had opened up the traditional drinking market to new cultures and influences, and encouraged the travel-friendly Irish to try other drinks. Beer and in particular stout were losing popularity compared with wine or the recently launched RTDs (ready-to-drinks) or FABs (flavoured alcoholic beverages), which the younger generation of drinkers considered trendier and ‘healthier’. As a Euromonitor report explained: Younger consumers consider dark beers and stout to be old fashioned drinks, with the perceived stout or ale drinker being an old, slightly overweight man and thus not in tune with image conscious youth culture.
Beer sales, which once accounted for 75 per cent of all alcohol bought in Ireland, were expected to drop to close to 50 per cent by 2006, while stout sales were forecast to decrease by 12 per cent between 2002 and 2006.
Giving Guinness a boost in its home market
With Guinness alone accounting for 37 per cent of Diageo’s volume in the market, Guinness/UDV Ireland was one of the first to feel the pain caused by the declining popularity of beer and in particular stout. A Euromonitor report in February 2002 explained how the profile of the Guinness drinker, typically men aged 21-plus, was affected: The average age of Guinness drinkers is rising and this is bringing about the worrying fact that the size of the Guinness target audience is falling. The rate of decline is likely to quicken as the number of less brand loyal, non-stout drinking younger consumers increases.
The report continued:
In Ireland, in particular, the consumer base for Guinness is shrinking as the majority of 18 to 24 year olds consistently reject stout as a product relevant to their generation, opting instead to consume lager or spirits.
Effectively, one-third of young Irish men and half of young Irish women had reportedly never tried Guinness. A Guinness employee provided another explanation. Guinness is similar to coffee in that when you’re young you drink it [coffee] with sugar, but when you’re older you drink it without. It’s got a similar acquired taste and once you’re over the initial hurdle, you’ll fall in love with it.
In an attempt to lure young drinkers to the somewhat ‘acquired’ Guinness taste (40 per cent of the Irish population was under the age of 24) Diageo had invested millions in developing product innovations and brand building in Ireland’s 10,000 pubs, clubs and supermarkets.
Until the mid-1990s most Guinness in Ireland was drunk in a pint glass in the local pub. The launch of product innovations in the form of a new cooling mechanism for draft Guinness and the ‘widget’ technology applied to cans and bottles attempted to modernize the brand’s image and respond to increasing competition from other local and imported stouts and lagers.
‘A perfect head’ for canned Guinness
In 1989, and at a cost of more than £10 million, Guinness developed an ingenious ‘widget’ device for its canned draft stout sold in ‘off-trade’ outlets such as supermarkets and off-licences. The widget, placed in the bottom of the can, released a gas that replicated the draft effect.
Although over 90 per cent of beer in Ireland was sold in ‘on-trade’ pubs and bars, sale of beer in the cheaper ‘off-trade’ channel were slowly gaining in importance. The Guinness brand manager at the time, John O’Keeffe, explained how home drinkers could now enjoy a smoother, creamier head similar to the one obtained in a pub thanks to the new widget technology:
When the can is opened, the pressure causes the nitrogen to be released as the widget moves through the beer, creating the classic draft Guinness surge.
Nearly 10 years later, in 1997, the ‘floating widget’ was introduced, which improved the effectiveness of the device.
A colder pint
In 1997 Guinness Draft Extra Cold was launched in Ireland. An additional chilled tap system could be added to the standard barrel in pubs, allowing the Guinness to be served at 4ºC rather than the normal 6ºC. By serving Guinness at a cooler temperature, Guinness/UDV hoped to mute the bitter taste of the stout and make it more palatable for younger adults, who were increasingly accustomed to drinking chilled lager, particularly in the summer
A cooler image for Guinness
In October 1999 the widget technology was applied to long-stemmed bottles of Guinness. The launch was supported by a US$2 million TV and outdoor board campaign. The packaging—with a clear, shiny plastic wrap, designed to look like a pint complete with creamy head—was quite a departure from the traditional Guinness look.
The objective was to reposition Guinness alongside certain similarly packaged lagers and RTDs and offer younger adults a more fashionable way to drink Guinness: straight from the bottle. It also gave Guinness easier access to the growing number of clubs and bars that were less likely to serve traditional draft Guinness easier access to the growing number of clubs and bars that were less likely to serve traditional draft Guinness, which could be kept for only six to eight weeks and took two minutes to pour. The RTDs, by contrast, had a shelf-life of more than a year and were drunk straight from the bottle.
However, financial analyst remained sceptical about the Guinness product innovations, which had no significant positive impact on sales or profitability:
The last news about the success of the recently introduced innovations suggests that they have not had a notably material impact on Guinness brand performance.
Euromonitor estimates that, in 2000, Diageo invested between US$230 and US$250 million worldwide in Guinness advertising and promotions. However, with a cost-cutting objective, the company reduced marketing expenses in both Ireland and the UK up to 10 per cent in 2001 and the number of global Guinness agencies from six to two.
Nevertheless, Guinness remained one of the most advertised brands in Ireland. It was the leading cinema advertiser and, in terms of advertising, was second only to the national telecoms provider, Eircom. Guinness was also heavily promoted at leading sporting and music events, in particular those that were popular with the younger age groups.
The ultimate tribute to the brand was the opening of the new Guinness Storehouse in Dublin in late 2000, a sort of Mecca for all Guinness fans. The Storehouse was also a fashionable visitor centre with an art gallery and restaurants, and regularly hosted evening events. The company’s design brief highlighted another key objective:
To use an ultramodern facility to breathe life into an ageing brand, to reconnect an old company with young (sceptical) customers.
As the Storehouse’s design firm’s director, Ralph Ardill, explained:
Guinness Storehouse had become the top tourist destination in Ireland, attracting more than half a million people and hosting 45,000 people for special events and training.
The Storehouse also had training facilities for Guinness’s bartenders and 3000 Irish employees. The quality of the Guinness pint remained a high priority for the company, which not only developed pub-like classrooms at the Storehouse but also employed teams of draft technicians to teach barmen how to pour a proper pint. The process involved two steps—the pour and the top-up—and took a total of 119.5 seconds. Barmen also needed to learn how to check that the pressure gauges were properly set and that the proportion of nitrogen to carbon dioxide in the gas was correct.
The uncertain future of the Guinness brand in Ireland
Despite Guinness/DUV’s attempt to appeal to the younger generation of drinkers and boost its fading image, rumours persisted in Ireland about the brand future. The country’s leading and respected newspaper, the Irish times, reported in an article in July 2001:
The uncertainty over its future all adds to the air of crisis that is building around Guinness Ireland Group four months ago…The review is not complete and the assumption is that there is more bad news to come.
In the pubs across Ireland, the traditional Guinness drinkers looked on anxiously as the younger generation drank Bacardi Breezers, Smirnoff Ices or Californian wines. Could the goliath Guinness survive another two centuries? Was the preference for these new drinks just a fad or fashion, or did Diageo need to seriously reconsider how it marketed Guinness?
A quick solution?
In late February 2002, Diageo CEO Paul Walsh revealed that the company was testing technology to cut the waiting time for a pint of Guinness from 1 minute 59 seconds to 15-25 seconds. Ultrasound could release bubbles in the stout and form the head instantly, making a pint of Guinness that would be indistinguishable from one produced by the slower, traditional method.
‘A two-minute pour is not relevant to our customers today,’ Walsh said. A Guinness spokeswoman continued, ‘We have got to move with the times and the brand must evolve. We must take all the opportunities that we can. In outlets where it is really busy, if you walk in after nine o’clock in the evening there will be a cloth over the Guinness pump because it takes longer to pour than other drinks. Aware that some consumers might not be attracted by the innovation, she added ‘It wouldn’t be put everywhere—only where people want a quick pint with no effect on the quality.’
Although still being tested, the ‘quick-pour pint’ was a popular topic of conversation in Dublin pubs, among barmen and customers alike. There were rumours that it would be introduced in Britain only; others thought it would be released worldwide.
Some market commentators viewed the quick-pour pint as an innovative way to appeal to the younger, less patient segment in which Guinness had under-performed. Others feared that the young would be unconvinced by the introduction, and loyal customers would be turned off by what they characterized as a ‘marketing u-turn’.
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CASE – 1
The Indian Railways’ ambitious Kashmir Railway Project. This was one of its most important and difficult projects as it aimed to build a railroad connection through the Himalayan foothills linking Kashmir with the rest of India. The main objective of this project was to provide an alternative and more reliable mode of transportation system to the people of Kashmir than the existing mode of travel by road. Officially, this track was named as the Jammu-Udhampur-Katra-Qazigund-Baramulla link (JUSBRL). The unique features of this line, according to observers, were the presence of a major earthquake zone, extreme environmental conditions in terms of temperature, and the most extreme geological profile throughout the entire terrain.
Some experts lauded the Indian Railway’s initiatives and how it had overcome some of the challenges associated with the project and said that once accomplished it would be an engineering miracle. However, it was also criticized on many fronts and some experts believed that the project had been bungled at the planning stage itself.
» Understand issues and challenges in executing a large infrastructure project by studying the ambitious Kashmir Railway Project which once accomplished would be an engineering miracle.
» Appreciate the difficulties before the project managers due to the fragile geology and steep topography – presence of a major earthquake zone, extreme environmental conditions in terms of temperature, etc.
» Appreciate the difficulties involved in the execution of large infrastructure projects in developing countries, and how these can be overcome.
CASE – 2
Spain-based Mango MNG Holding SL (Mango), the flagship of a group of companies involved in design, manufacture, and distribution of garments and fashion accessories, sold garments for men and women and accessories through exclusive stores. The company was started in 1984 in Spain, and expanded rapidly to more than 107 countries across the world by 2012. Mango went on to become the second largest textile exporter in Spain. Mango was one of the pioneers of fast fashion. The company was able to design the garments and send them to the stores within a span of three months.
It could also bring designs with slight modifications within just two weeks. The case discusses Mango’s business model under which it retained some of the core activities of its value chain in-house while outsourcing the rest of the activities. Important activities like design and distribution were managed completely by the company, while manufacturing, which was a labor-intensive task, was outsourced. The company retailed through its own outlets as well as through franchisees. This business model helped the company expand rapidly and also minimize the risks.
» Analyze Mango’s business model.
» Study the design, production, distribution, and store management processes at Mango.
» Evaluate Mango’s core and non-core activities.
» Understand which processes can be managed in-house and which ones can be outsourced..
CASE – 1 MANAGING HINDUSTAN UNILEVER STRATEGICALLY
Unilever is one of the world’s oldest multinational companies. Its origin goes back to the 19th century when a group of companies operating independently, produced soaps and margarine. In 1930, the companies merged to form Unilever that diversified into food products in 1940s. Through the next five decades, it emerged as a major fast-moving consumer goods (FMCG) multinational operating in several businesses. In 2004, the Unilever 2010 strategic plan was put into action with the mission to ‘bring vitality to life’ and ‘to meet everyday needs for nutrition, hygiene and personal care with brands that help people feel good, look good, and get more out of life’. The corporate strategy is of focusing on bore businesses of food, home care and personal care. Unilever operates in more than 100 countries, has a turnover of € 39.6 billion and net profit of € 3.685 billion in 2006 and derives 41 per cent of its income from the developing and emerging economies around the world. It has 179,000 employees and is a culturally-diverse organisation with its top management coming from 24 nations. Internationalisation is based on the principle of local roots with global scale aimed at becoming a ‘multi-local multinational’.
The genesis of Hindustan Unilever (HUL) in India, goes back to 1888 when Unilever exported Sunlight soap to India. Three Indian, subsidiaries came into existence in the period 1931-1935 that merged to form Hindustan Lever in 1956. Mergers and acquisitions of Lipton (1972), Brooke Bond (1984), Ponds (1986), TOMCO (1993), Lakme (1998) and Modern Foods (2002) have resulted in an organisation that is a conglomerate of several businesses that have been continually restructured over the years.
HUL is one of the largest FMCG company in India with total sales of Rs. 12,295 crore and net profit of 1855crore in 2006. There are over 15000 employees, including more than 1300 managers. The present corporate strategy of HUL is to focus on core businesses. These core businesses are in home and personal care and food. There are 20 different consumer categories in these two businesses. For instance, home and personal care is made up of personal wash, laundry, skin care, hair care, oral care, deodorants, colour cosmetics and ayurvedic personal and health care, while food businesses have tea, coffee, ice creams and processed food brands. Apart from the two product divisions, there are separate departments for specialty exports and new ventures.
Strategic management at HUL is the responsibility of the board of directors headed by a chairman. There are five independent and five whole-time directors. The operational management is looked after by a management committee comprising of Vice Chairman, CEO and managing director and executive directors of the two business divisions and functional areas. The divisions have a lot of autonomy with dedicated assets and resources. A divisional committee having the executive director and heads of functions of sales, commercial and manufacturing looks after the business level decision-making. The functional-level management is the responsibility of the functional head. For instance, a marketing manager has a team of brand managers looking after the individual brands. Besides the decentralised divisional structure, HUL has centralised some functions such as finance, human resource management, research, technology, information technology and corporate and legal affairs.
Unilever globally and HUL nationally, operate in the highly competitive FMCG markets. The consumer markets for FMCG products are finicky: it’s difficult to create customers and much more difficult to retain them. Price is often the central concern in a consumer purchase decision requiring producers to be on continual guard against cost increases. Sales and distribution are critical functions organisationally. HUL operates in such a milieu. It has strong competitors such as the multinationals Procter & Gamble, Nivea or L’Oreal and formidable local companies such as, Amul, Nirma or the Tata
FMCG companies to contend with. Rivals have copied HUL’s strategies and tactics, especially in the area of marketing and distribution. Its innovations such as new style packaging or distribution through women entrepreneurs are much valued but also copied relentlessly, hurting its competitive advantage.
HUL is identified closely with India. There is a ring of truth to its vision statement: ‘to earn the love and respect of India by making a real difference to every Indian’. It has an impeccable record in corporate social responsibility. There is an element of nostalgia associated with brands like Lifebuoy (introduced in 1895) and Dalda (1937) for senior citizens in India. Consequently Indians have always perceived HUL as an Indian company rather than a multinational. HUL has attempted to align its strategies in the past to the special needs of Indian business environment. Be it marketing or human resource management, HUL has experimented with new ideas suited to the local context. For instance, HUL is known for its capabilities in rural marketing, effective distribution systems and human resource development. But this focus on India seems to be changing. This might indicate a change in the strategic posture as well as recognition that Indian markets have matured to the extent that they can be dealt with by the global strategies of Unilever. At the corporate level, it could also be an attempt to leverage global scale while retaining local responsiveness to some extent.
In line with the shift in corporate strategy, the focus of strategic decision-making seems to have moved from the subsidiary to the headquarters. Unilever has formulated a new global realignment under which it will develop brands and streamline product offerings across the world and the subsidiaries will sell the products. Other subtle indications of the shift of decision-making authority could be the appointment of a British CEO after nearly forty years during which there were Indian CEOs, the changed focus on a limited number of international brands rather than a large range of local brands developed over the years and the name-change from Hindustan Lever to Hindustan Unilever.
The shift in the strategic decision-making power from the subsidiary to headquarters could however, prove to be double-edged sword. An example could be of HUL adopting Unilever’s global strategy of focussing on a limited number of products, called the 30 power brands in 2002. That seemed a perfectly sensible strategic decision aimed at focusing managerial attention to a limited set of high-potential products. But one consequence of that was the HUL’s strong position in the niche soap and detergent markets suffering owing to neglect and the competitors were quick to take advantage of the opportunity. Then there are the statistics to deal with: HUL has nearly 80 per cent of sales and 85 per cent of net profits from the home and personal care businesses. Globally, Unilever derives half its revenues from food business. HUL does not have a strong position in the food business in India though the food processing industry remains quite attractive both in terms of local consumption as well as export markets. HUL’s own strategy of offering low-price, competitive products may also suffer at the cost of Unilever’s emphasis on premium priced, high end products sold through modern outlets.
There are some dark clouds on the horizon. HUL’s latest financials are not satisfactory. Net profit is down, sales are sluggish, input costs have been rising and new food products introduced in the market have yet to pick up. All this while, in one market segment after another, a competitor pushes ahead. In a company of such a big size and over-powering presence, these might still be minor events developments in a long history that needs to be taken in stride. But, pessimistically, they could also be pointers to what may come.