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Case Study 1-:

Unted Bscuts has a ong hstory of successfu products, perhaps the most famous beng McVtes
dgestve bscut whch was the market eader for many years after ts ntroducton n the 1920s. But
now the snack market s domnated by names such as Dortos and Prnges, whe the market tsef
has grown as eatng habts have changed. For exampe, t has been estmated that amost haf of a
fames eat ther man meas n front of the teevson rather than at the tabe.
About twenty years ago Unted Bscuts dentfed ths trend and started to move out of the tradtona
bscut market nto ready meas, pzzas and snacks. But by ate 1999 Unted Bscuts was up for sae,
havng seen ts share prce fa by haf n ess than sx years. Durng the same perod profts have
faen from over 200 mon per year to about 100 mon.
The company had been operatng successfuy for over haf a century n a demandng market whch
requres ongong nnovaton n terms of products. But atey t seemed to have ost ts way. An
exampe s n the crsp market whch had grown sgnfcanty n the UK durng the 1980s and 1990s;
whe the market shares of Wakers and Procter and Gambe grew dramatcay Unted Bscuts ost
6% market share.
Unted Bscuts was formed by the merger of the Scottsh famy bscut maker McVte and Prce wth
Macfarane Lang n 1948. Then t acqured smaer rvas such as Crawfords, Carrs and Kemps and
ended up wth over haf the UK bscut market by voume. Unted Bscuts coud not ncrease ts UK
market share by much more wthout attractng the attenton of the Monopoes Commsson, so
attenton was turned to the US. In the eary 1970s the number two US manufacturer Keeber (second
to Nabsco) was makng osses party due to the Carter prce contros. Soon after the acquston prce
contros were fted and Keeber was back n proft. Attenton was then turned to Europe, whch
turned out to be more dffcut to enter than the US market. Fndng expanson on the nternatona
front ncreasngy dffcut attenton then turned to dversfcaton.
Ths nvoved acqustons of burger bars, chocoate makers and frozen fsh suppers. Some of the
brands nvoved were aready famous, ncudng Terrys of York, Caard and Bowser, Wmpy,
Pzzaand and Ross Young. At the tme Unted Bscuts approach to fnancng these acqustons by
equty ssue was qute nnovatve. By 1985 Unted Bscuts entered nto a bddng war wth Lord
Hanson for the ownershp of Impera Group, whch at the tme was much arger than UB. However,
UB ost out to Hanson, athough ths may have been a good thng because Impera Group at that
tme was a hghy dversfed congomerate operatng n many areas where UB had no experence.
By 1995 Keeber was sod because t had been performng poory for severa years. Some observers
argued that ths was because of nadequate contro from London. In the event the new owners
nsttuted a restructurng programme, merged t wth the bscut maker Sunshne and the vaue of the
company ncreased from $600 mon at purchase to $2.5 bon - whch s sgnfcanty greater than
UB tsef.
By the ate 1990s UB was changng drecton to focus once more on bscut brands such as Hob Nobs,
Dgestves and |affa Cakes. In addton n 1998 two non UK bscut makers were acqured: Stowerck
n Hungary and Deacre n Europe. The ntenton was announced of seng off the frozen food
busness. But Unted Bscuts came under pressure n 1999 to se off more than the frozen food
busness, and receved an offer of about 600 mon for the snack dvson. Nabsco submtted an
offer of 260p per share for the company as a whoe but ths was re|ected as beng too ow, ma|or
sharehoders argung that the company shoud not se off ts assets pecemea but shoud mantan
ts most famous brands.
The archtect of UBs deveopment unt 1990 was Lord Lang, one of the members of the orgna
famy owners; he was responsbe for the Keeber acquston and the subsequent dversfcaton. Hs
atest successor, Mr Van de Wae, has no emotona attachment to the varous components of the
busness and s ceary pursung a pocy of ratonazaton and restructurng.
Case Study 2-:
The Acme Co scenaro s based on a mted abty company whch currenty produces three
products and s nvestng n the deveopment of three further products. The three products currenty
on sae are as foows.
1. The ong standng Dcer s a hgh vaue precson ndustra meta cuttng too whch s taored
to meet the requrements of ndvdua customers. Its market has been greaty dmnshed
over the past fve years by a new generaton of aser based machnes. Many of the empoyees
have been wth the company for over twenty years and the CEO has rewarded ther oyaty by
keepng them n a |ob despte the fortunes of the Dcer. It s fet that ts quaty s such that t
s abe to command a premum prce.
2. The Tracer s a mass produced measurng too and Acme acqured t n an acquston dea
seven years ago.
3. The |-Ceaner s a hgh powered |et water ceaner whch was deveoped by Acme and went on
the market four years ago. Unfortunatey the technoogy s a tte unreabe and efforts are
st beng made to reduce the warranty return rate.
Acme has nvested heavy n new product deveopment n the past few years and at the moment s
hopng to aunch on the market the foowng.
A new book bndng machne (Bnder) on the market n two years
A computer devce whch w enabe astronomers to hook up ther teescope to the computer
(Astrocomp) n three years
An hydrauc ftng system for domestc use (Hydrau) n four years.
There s a degree of uncertanty assocated wth potenta markets and costs for a three of these
and some rsk measures are presented n the report.
The company s organsed n three dvsons but many mportant decsons are made by the
corporate CEO and hs team of Marketng manager, Accountant and Operatons Drector.
The foowng s an extract from a management group meetng caed to dscuss the annua accounts
and assocated data; the corporate CEO starts by referrng to todays newspaper. THE FINANCIAL
TIMES: An Overheatng Economy? The past two years have seen the fastest growth n the economy
n 20 years, wth rea GNP ncreasng by over 4% each year. But there are sgns that ths s causng
extreme nfatonary pressures, the unempoyment rate has dropped to ts owest eve for 12 years,
and wage cams are up to 12%.
1. CEO: does ths artce n the Fnanca Tmes have any reevance to us?
2. Marketing Manager: ths growng market has had a bg mpact on saes of the Tracer; we
have ended up wth a ot of unsatsfed customers. The |-Ceaner has been growng for some
tme as a resut of our prcng and marketng efforts to ncrease market share; whe saes
have ncreased by about 20% n the past two years the market share has stayed ow.
Otherwse t does not affect thngs much.
3. The mportant thng s where our products are on the fe cyce. The Tracer was a cash cow
but seems to have turned nto a star. The |-Ceaner s a star because t s aso growng. The
Dcer s at a dffcut stage because t has gone out of fashon, so we shoud ncrease the prce
further to ncrease our margns.
4. Accountant: I fnd ths marketng tak qute far removed from the busness reates. We need
to bear n mnd that the wage cost on the Dcer s qute hgh, so f wages ncrease by 12% ths
year we coud be n troube regardng proftabty and cash fow.
Look at the osses on the |-Ceaner. We need to reaocate resources from t to the Tracer and the
Dcer where we are actuay makng money.
5. Operations director: we need to take a wder vew of thngs. I have done fve forces
anayss of the threats facng us and I reckon that the most mportant s the fact that we are
not usng our peope propery, gven the overtme workng on the |-Ceaner and the part tme
workng on the Dcer. In addton I have been examnng the vaue chan, and there are some
weaknesses n our processes. For exampe the hgh marketng on the |-Ceaner s not payng
off n a hgher market share.
6. J-Cleaner CEO: my peope are workng a the hours of the day and nght to produce unts
whch the marketng peope cant seem to se. I dont thnk you reay understand the bass
on whch the |-Ceaner s sod. We are spendng a fortune on product deveopment to mt the
damage done to our reputaton by warranty returns; so we shoud put the prce up to shft t
to a better poston n the prce dfferentaton matrx. It s four years snce we aunched the |-
Ceaner but I fee that the company has not accommodated our dfferent producton
requrements very we.
7. Accountant: we need to spend more on R&D n genera. Our share prce has been pretty
steady for the ast fve years and our market captasaton s 10 mon. Its tme we ssued
shares to fnance deveopment rather than takng out oans. The owner equty s currenty
over 14 mon so we shoud be abe to se shares up to about 4 mon n vaue. 7. Dcer
CEO: I dont see why we have to keep on changng everythng. In the od days we stuck wth
what we are good at and made about 15% ROI year n and year out. Now we seem to be a
over the pace.
8. Tracer CEO: actuay I thnk we are dong the rght thng n ncreasng our portfoo. When the
new products come on stream our rsk profe w be greaty mproved. We have
demonstrated that we can make money n the Tracer market and we can easy carry these
sks over to the markets for the Bnder, AstroComp and Hydrau.
9. CEO: I dont thnk the way the pannng department set out the rsks for the three products s
very hepfu. We can smpy take the md pont estmate n each case - after a, what we ose
on one we sha make up on the others by the aw of averages.
Case Study 3:
AcmeDgger s a medum szed company producng sma mechanca dggers (under the brand name
of EasyDgger) wth a payro of 400 and turnover of $200 mon. It s currenty makng profts of $16
mon, whch represents a return on nvestment of 10%. The CEO made the foowng statement at a
meetng of the senor management team.
I am now ready to present the company strategic plan to you. The small digger market has been
static for the past decade and it is expected that it will continue at this level into the foreseeable
future. However, the market for small road rollers has been increasing for the past five years and,
with continuing favourable economic conditions, we are going to take advantage of this. We
currently have !" of the digger market and, while it would be possible to increase the share which
the #asy$igger commands during the current year by additional marketing, we have come to the
conclusion that these resources would generate higher returns in the long term by launching a new
roller product % the #asy&oller. We expect the reputation of our #asy$igger will help to break into the
roller market, and confidently expect sales to reach '!( million within two years.
We shall build an extension to our current premises, to be completed by the end of this year and be
in production within eight months. The cost of the new premises and e)uipment will be '*( million
and we shall have to hire an additional +(( staff. We intend to fund this by paying '+( million from
retained earnings, and the ,inance $irector is certain that his banking contacts will be willing to lend
us the remaining '-( million. .ecause The #asy&oller will share about /(" of components with the
#asy$igger we shall be integrating this new product into our existing production system. The
existing marketing department will be provided with additional resources if necessary once the new
product comes on stream.
This 0lan has been developed by myself in collaboration with the ,inance $irector and, as with other
operational matters, it will be implemented under the direction of the 0roduction 1anager.
1. To what extent does the resource based vew of strategy expan the deveopment of the
Strategc Pan?
2. How woud you characterse AcmeDggers generc strategc choces?
Three years after the aunch of the EasyRoer the CEO of AcmeDgger was becomng ncreasngy
troubed. He now had more tme to thnk snce he had restructured the company nto two SBUs; he
had gven the Fnance Drector the addtona responsbty of runnng the AcmeDgger SBU and had
promoted the producton manager to be n charge of the EasyRoer SBU.
Ths shoud have gven hm breathng space to worry about genera strategy, but the mmedate
probem whch the Fnance Drector had ponted out to hm yesterday was the bottom ne. From a
poston of makng $16 mon proft (10% ROI) AcmeDgger was now osng cash on a monthy bass
at an aarmng rate. But he had been convnced that the two SBUs were performng we. Whe the
EasyDgger had ost a tte market share (down to 13% from 15%), because the market was growng
t was st turnng over $200 mon of busness; however, ts costs had ncreased as a resut of
producton ntegraton probems and shortages of components due to demands from the EasyRoer
so proft had faen to $12 mon. The EasyRoer had not qute reached ts saes target of $50
mon, but the EasyRoer manager (who had been the Producton Manager before EasyRoer was
aunched) camed that the target was specuatve anyway and that t achevng saes of $30 mon
was a success n ts own rght.
The CEO had not been partcuary worred that addtona abour hrng for the EasyRoer had been
250 rather than 200 as orgnay antcpated, but now t had turned out that there was a very hgh
turnover rate and the human resources department had reported consderabe dffcutes wth
recrutment. As a resut productvty was much ower than pro|ected, abour costs were over $12
mon per year compared wth an expected $9 mon and the ntegraton of processes and
components had not gone as we as had been hoped; the resut was that costs were st about $5
mon more than revenues.
The company corporate functon had not been changed wth the addton of the EasyRoer SBU. The
centra functons of accountng, human resources and marketng were st handed at corporate eve
and the CEO had n the past congratuated hmsef on runnng a ean organsaton, because there had
been no ncrease n the corporate headcount as a resut of the expanson. Now he refected that t
was |ust as we he had not ncreased the marketng departments budget and had hated a product
deveopment or the cash fow stuaton woud have been even worse. It had not been a good meetng
wth the Fnance Drector yesterday, who had taken some tme off from runnng the EasyDgger to
carry out hs corporate dutes and had brought some bad news. The orgna estmate of $60 mon
nvestment had been wdy optmstc. The deays n constructon and machnery nstaaton had ed
to an addtona $40 mon to a tota of $100 mon. The sow take up n demand meant that
operatona osses so far amounted to $20 mon; t turned out that the bankers were not so frendy
as had been hoped and most of the cumuatve oan of $100 mon had to be rased at a pena rate
of nterest, so nterest payments aone amounted to $10 mon. It was no wonder the company was
beedng cash, the Fnance Drector ponted out; the profts generated by the EasyDgger had been
nfated by settng up separate operatng accounts for the two products and hence the EasyDgger
accounts no onger ncuded corporate saares.
He made a smpe cacuaton: the profts generated by the EasyDgger amounted to $12 mon,
whe the osses on the EasyRoer were $5 mon, corporate saares were $4 mon and nterest
payments $10 mon. In a fu year that woud mean a oss of $7 mon so, gven that cash reserves
had been amost totay depeted n the aunch phase of the EasyRoer, t ooked ke AcmeDgger
was n danger of gong bankrupt. He aso ponted out that the gearng rato was now 60%, and the
chances of rasng any more funds were ookng remote.
If ony . . .saes of the EasyRoer had been $50 mon,
f ony . . .abour costs had not turned out to be so hgh,
f ony . . .the ntegraton of producton processes had worked,
f ony . . .Somethng drastc appeared to have gone wrong wth mpementng the pan.
Case Study: 4: ike: t!e trainer "altered
Nke was founded n 1957 by two ndvduas seng ow prce hgh tech runnng shoes out of the back
of a van. In 1972 the company became Nke and the swoosh embem was born. In 1978 Nke was
accused by the Washngton Post of provdng free shoes to basketba coaches to gve to ther teams.
Whe Nke had done nothng ega, ts compettors stepped back from payer endorsements. At that
pont Nke acted and sgned up everyone t coud, thus ayng the foundatons for future reatonshps
wth goba stars.
By 1988 Nke was the brand eader n the word tranng shoe market; by 1997 ts market share was
33%, whe n the huge US market Nke was even more domnant, wth a 40% market share. The
brand was nstanty recognzabe everywhere, and has |oned the Coca-Coa can and the MacDonads
yeow M as a brand that s nstanty recognzabe by ts ogo. It has consstenty been at the forefront
of technoogy and desgn - for exampe t was the frst to use Nasas ar-soe cushonng system and
sver fabrcs, and was the frst to ntroduce tranng shoes for women. But by the end of 1997 thngs
had started to go wrong. In the ast quarter of 1997 net earnngs sumped by over two thrds, there
had been two proft warnngs, and over 1000 empoyees n the US had been made redundant. Ths
had contrbuted to a sump n morae and the company seemed to have ost ts dynamsm and
eadershp.
T!e #arket
Some commentators reckoned that the branded sportswear boom had passed ts peak and that the
goba market was becomng saturated. Ths was exacerbated by the economc probems n the Far
East, whch was a sgnfcant part of the tota market. Tranng shoes are to some extent a fashon
tem and, as such, are sub|ect to changes n preferences; by 1997 there had been a sgnfcant
change n taste towards brown shoe goods, whch are hybrd tranng/wakng shoes. By 1997
Rockport, a brown shoe maker, had saes of $500 mon. In fact, sport and fashon are becomng
ncreasngy ntertwned and the sportswear market s now worth about $5 bon per year.
Some superstores were obtanng cheap suppes of Nke shoes (on the so-caed grey market) and
seng them at a substanta dscount. Ths was undermnng Nkes brand mage of premum prce
and quaty.
T!e co#pany
Nke had come n for some bad pubcty regardng the workng condtons of ts many empoyees n
Asa. There were reports of very ow pay and extremey poor and repressve workng condtons.
Whether these reports were entrey true s not cear, but they ed to wdespread dsenchantment
wth the company. Couped wth the ayoffs wthn the US, morae n the company was adversey
affected and many empoyees fet that the company was now so bg that t was mpossbe for
ndvduas to affect ts operaton. By 1998 t was estmated that Nke had accumuated nventores
amountng to $1.5 bon It woud appear that the company had not reacted qucky enough to the
changng market condtons. In fact, the sgns had been appearng for some tme; for exampe, by
1996 Nkes Hoywood dvson, whch paces products wth ceebrtes, was havng dffcuty
dsposng of traners; but the Nke market researchers (known as coobunters) seemed not to have
spotted what was happenng.
Some concern has been expressed that Nke has concentrated too much on fashon shoes and not
enough on sports shoes whch are worn by athetes and perhaps enhance ther performance. In fact,
one of the fastest growng Nke products s the footba boot whch s not a fashon tem.
Some commentators have ponted out that the brand stretchng undertaken by Nke -: nto cothng
and outdoor footwear, for exampe - has not reay pad off and ths has contrbuted to the decne n
Nkes proftabty.
$!at o" t!e "uture
The four year od Nke corporate centre occupes a 75 acre ste and has a workforce of about 2500.
Ths s where research and deveopment and desgn and marketng are carred out. The marketng
budget aone amounts to $5.6 bon of whch about $4 bon goes on team and ndvdua
sponsorshp. The R&D effort s producng new products, notaby the Apha ne, whch are hgh
technoogy top of the ne products whch w reta for hgher prces than Nkes current products.
The Apha range w ncude the Ar Zoom Ctzen, a runnng shoe wth an ad|ustabe meta hee
whch mouds to your foot, and tranng shoes that reman coo durng use.
There coud be scope for a ess unform goba approach, for exampe by deveopng shoes
specfcay for the Asan market.
It coud be that Nke now needs to change ts mage. Ths coud nvove rentroducng the scrpt ogo,
desgnng a new ogo for the Apha range and pro|ectng a ess strdent corporate mage.

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