CASE 1
COMPANY BACKGROUND
The Bronson Insurance Group was originally founded in 1900 in Auxvasse, Missouri, by James Bronson. The Bronson Group owns a variety of companies that underwrite personal and commercial insurance policies. Annual sales of the Bronson Group are $100 million. In recent years, the company has suffered operating losses. In 1990, the company was heavily invested in computer hardware and software. One of the problems the Bronson Group faced (as well as many insurance companies) was a conflict between established manual procedures and the relatively recent (within the past 20 years) introduction of computer equipment. This conflict was illustrated by the fact that much information was captured on computer but paper files were still kept for practical and legal reasons.
FILE CLERKS
The file department employed 20 file clerks who pulled files from stacks, refilled used files, and delivered files to various departments including commercial lines, personal lines, and claims. Once a file clerk received the file. Clerks delivered files to underwriters on an hourly basis throughout the day. The average file clerk was paid $8,300 per year. One special file clerk was used full time to search for requested files that another file clerk had not been able to find in the expected place. It was estimated that 40 percent of the requested files were these “no hit” files requiring a search. Often these “no hit” files were eventually found stacked in the requester’s office. The primary “customers” of the file clerks were underwriters and claims attorneys.
UNDERWRITING
Company management and operations analysts were consistently told that the greatest problem in the company was the inability of file clerks to supply files in a speedy fashion. The entire company from top to bottom viewed the productivity and effectiveness of the department as unacceptable. An underwriter used 20-50 files per day. Because of their distrust of the files department, underwriters tended to hoard often used files. A count by operations analysts found that each underwriter kept from 100-200 files in his or her office at any one time. An underwriter would request a file by computer and work on other business until the file was received. Benson employed 25 underwriters.
MANAGEMENT INFORMATION SYSTEM
Upper management was deeply concerned about this problem. The MIS department had suggested using video disks as a possible solution. A video disk system was found that would be sufficient for the companies needs at a cost of about $12 million. It was estimated that the system would take two years to install and make compatible with existing information systems. Another, less attractive was using microfilm. A microfilm system would require underwriters to go to a single keyboard to request paper copies of files. The cost of a microfilm system was $5 million.
1. What do you recommend? Should the company implement one of the new technologies? Why or why not?
2. An operations analyst suggested that company employees shared a “dump on the clerks”
mentality. Explain.
CASE 2
Harrison T. Wenk III is 43, married, and has two children, ages 10 and 14. He has a master’s degree in education and teachers junior high school music in a small town in Ohio. Harrison’s father passed away two months ago, leaving his only child an unusual business opportunity. According to his father’s will, Harrison has 12 months to become active in the family food-catering business, Kare-Full Katering, Inc., or it will be sold to two key employees for a reasonable and fair price. If Harrison becomes involved, the two employees have the option to purchase a significant, but less than majority, interest in the firm. Harrison’s only involvement with this business, which his grandfather established, was as an hourly employee during high school and college summers. He is confident that he could learn and perhaps enjoy the marketing side of the business, and that he could retain the long-time head of accounting/finance. But he would never really enjoy day-to-day operations. In fact, he doesn’t understand what operations management really involves. In 1991 Kare-Full Katering, Inc. had $3.75 million in sales in central Ohio. Net profit after taxes was $ 105,000, the eleventh consecutive year of profitable operations and the seventeenth in the last 20 years. There are 210 employees in this labor-intense business. Institutional contracts account for over 70 percent of sales and include partial food services for three colleges, six commercial establishments) primarily manufacturing plants and banks), two long -term care facilities, and five grade schools. Some customer location employs a permanent operations manager; others are served from the main kitchens of Kare-Full Katering. Harrison believes that if he becomes active in the business, one of the two key employees, the vice president of operations, will leave the firm.Harrison has decided to complete the final two months of this school year and then spend the summer around Kare-Full Katering – as well as institutions with their own food services – to assess whether he wants to become involved in the business. He is particularly interested in finding out as much as possible about operations. Harrison believes he owes it to his wife and children to fairly evaluate this opportunity.
1. Prepare a worksheet of operations activities that Harrison should inquire about this summer.
2. If you were Harrison, what would you do? Why?
CASE 3
Trust them with knee-jerk reactions," said Vikram Koshy, CEO, Delta Software India, as he looked at the quarterly report of Top Line Securities, a well-known equity research firm. The firm had announced a downgrade of Delta, a company listed both on Indian bourses and the NASDAQ. The reason? "One out of every six development engineers in the company is likely to be benched during the remaining part of the year." Three analysts from Top Line had spent some time at Delta three weeks ago. Koshy and his team had explained how benching was no different from the problems of excess inventory, idle time, and surplus capacity that firms in the manufacturing sector face on a regular basis, "Delta has witnessed a scorching pace of 30 per cent growth during the last five years in a row," Koshy had said, "What is happening is a corrective phase." But, evidently, the analysts were unconvinced.
Why Bench?
Clients suddenly decide to cut back on IT spends Project mix gets skewed, affecting work allocation Employee productivity is set to fall, creating slack working conditions. High degree of job specialization leads to redundancy
What are the options?
Quickly cut costs in areas which are non-core look for learning’s from the manufacturing sector Focus on alternative markets like Europe and Japan Move into products, where margins are better. Of course, the Top Line report went on to cite several other "signals," as it said: the rate of annual hike in salaries at Delta would come down to 5 per cent (from between 20 and 30 per cent last year); the entry-level intake of engineers from campuses in June 2001, would decline to 5 per cent (unlike the traditional 30 per cent addition to manpower every year); and earnings for the next two years could dip by between 10 and 12 per cent. And the loftiest of them all: "The meltdown at Nasdaq is unlikely to reverse in the near future." "Some of the signals are no doubt valid. And ominous," said Koshy, addressing his A-Team, which had assembled for the routine morning meeting. "But, clearly, everyone is reading too much into this business of benching. In fact, benching is one of the many options that our principals in the US have been pursuing as part of cutting costs right since September, 2000. They are also expanding the share of off-shore jobs. Five of our principals have confirmed that they would outsource more from Delta in India-which is likely to hike their billings by about 30 per cent. At one level, this is an opportunity for us. At another, of course, I am not sure if we should be jubilant, because they have asked for a 25-30 per cent cut in billing rates. Our margins will take a hit, unless we cut costs and improve productivity." "Productivity is clearly a matter of priority now," said Vivek Varadan, Vice-President (Operations). "If you consider benching as a non-earning mode, we do have large patches of it at Delta. As you are aware, it has not been easy to secure 70 per cent utilization of our manpower, even in normal times. I think we need to look at why we have 30 per cent bench before examining how to turn it into an asset." "There are several reasons," remarked Achyut Patwardhan, Vice-President (HR). "And a lot of it has to do with the nature of our business, which is more project-driven than product-driven. When you are managing a number of overseas and domestic projects simultaneously, as we do at Delta, people tend to go on the bench. They wait, as they complete one project, and are assigned the next. There are problems of coordination between projects, related to the logistics of moving people and resources from one customer to another. In fact, I am fine-tuning our monthly manpower utilization report to provide a breakup of bench costs specifics-leave period, training programmes, travel time, buffers, acclimatization period et al." "It would be worthwhile following the business model used by US principal Techno Inc," said Aveek Mohanty, Director (Finance). "The company has a pipeline of projects, but it does not manage project by project. What it does is to slice each project into what it calls 'activities'. For example, communication networking; user interface development; scheduling of processes are activities common to all projects. People move from one project to another. It is somewhat like the Activity Based Costing. It throws up the bench time straightaway, which helps us control costs and revenue better." "I also think we should reduce our dependence on projects and move into products," said Praveen Kumar, Director (Marketing). "That is where the opportunity for brand building lies. In fact, now is the time to get our technology guys involved in marketing. Multiskilling helps reduce the bench time." "Benching has an analogy in the manufacturing sector," said Girish Shahane, Vice-President (Services). "We could look for learning's there. Many firms have adopted Just-In-Time (JIT) inventory as part of eliminating idle time. It would be worthwhile exploring the possibility of JIT. But the real learning lies in standardization of work. It is linked to what Mohanty said about managing by activities." "At a broader level, I see several other opportunities," said Koshy, "We can fill in the space vacated by US firms and move up the value chain. But before we do so, Delta should consolidate its position as the premier outsourcing centre. Since there are only two ways in which we can generate revenue-sell expertise or sell products-we should move towards a mix of both. Tie-ups with global majors will help. Now is the time to look beyond the US and strike alliances with firms in Europe- and also Japan-as part of developing new products for global markets."
1. Should benching be a matter of concern at Delta?
2. What are the risks involved in moving from a project-centric mode to a mix of projects and products?
CASE 4
The war on drugs is an expensive battle, as a great deal of resources go into catching those who buy or sell illegal drugs on the black market, prosecuting them in court, and housing them in jail. These costs seem particularly exorbitant when dealing with the drug marijuana, as it is widely used, and is likely no more harmful than currently legal drugs such as tobacco and alcohol. There's another cost to the war on drugs, however, which is the revenue lost by governments who cannot collect taxes on illegal drugs. In a recent study for the Fraser Institute, Canada, Economist Stephen T. Easton attempted to calculate how much tax revenue the government of the country could gain by legalizing marijuana. The study estimates that the average price of 0.5 grams (a unit) of marijuana sold for $8.60 on the street, while its cost of production was only $1.70. In a free market, a $6.90 profit for a unit of marijuana would not last for long. Entrepreneurs noticing the great profits to be made in the marijuana market would start their own grow operations, increasing the supply of marijuana on the street, which would cause the street price of the drug to fall to a level much closer to the cost of production. Of course, this doesn't happen because the product is illegal; the prospect of jail time deters many entrepreneurs and the occasional drug bust ensures that the supply stays relatively low. We can consider much of this $6.90 per unit of marijuana profit a risk-premium for participating in the underground economy. Unfortunately, this risk premium is making a lot of criminals, many of whom have ties to organized crime, very wealthy. Stephen T. Easton argues that if marijuana was legalized, we could transfer these excess profits caused by the risk premium from these grow operations to the government: If we substitute a tax on marijuana cigarettes equal to the difference between the local production cost and the street price people currently pay – that is, transfer the revenue from the current producers and marketers (many of whom work with organized crime) to the government, leaving all other marketing and transportation issues aside we would have revenue of (say) $7 per [unit]. If you could collect on every cigarette and ignore the transportation, marketing, and advertising costs, this comes to over $2 billion on Canadian sales and substantially more from an export tax, and you forego the costs of enforcement and deploy your policing assets elsewhere. One interesting thing to note from such a scheme is that the street price of marijuana stays exactly the same, so the quantity demanded should remain the same as the price is unchanged. However, it's quite likely that the demand for marijuana would change from legalization. We saw that there was a risk in selling marijuana, but since drug laws often target both the buyer and the seller, there is also a risk (albeit smaller) to the consumer interested in buying marijuana. Legalization would eliminate this risk, causing the demand to rise. This is a mixed bag from a public policy standpoint: Increased marijuana use can have ill effects on the health of the population but the increased sales bring in more revenue for the government. However, if legalized, governments can control how much marijuana is consumed by increasing or decreasing the taxes on the product. There is a limit to this, however, as setting taxes too high will cause marijuana growers to sell on the black market to avoid excessive taxation. When considering legalizing marijuana, there are many economic, health, and social issues we must analyze. One economic study will not be the basis of Canada's public policy decisions, but Easton's research does conclusively show that there are economic benefits in the legalization of marijuana. With governments scrambling to find new sources of revenue to pay for important social objectives such as health care and education expect to see the idea raised in Parliament sooner rather than later.
1. Plot the demand schedule and draw the demand curve for the data given for Marijuana in the case above.
2. On the basis of the analysis of the case above, what is your opinion about legalizing marijuana in
CASE 5
Companies that attend to productivity and growth simultaneously manage cost reductions very differently
from companies that focus on cost cutting alone and they drive growth very differently from companies
that are obsessed with growth alone. It is the ability to cook sweet and sour that under grids the remarkable performance of companies likes Intel, GE, ABB and Canon. In the slow growth electrotechnical business, ABB has doubled its revenues from $17 billion to $35 billion, largely by exploiting new opportunities in emerging markets. For example, it has built up a 46,000 employee organization in the Asia Pacific region, almost from scratch. But it has also reduced employment in North America and Western Europe by 54,000 people. It is the hard squeeze in the north and the west that generated the resources to support ABB's massive investments in the east and the south. Everyone knows about the staggering ambition of the Ambanis, which has fuelled Reliance's evolution into the largest private company in India. Reliance has built its spectacular rise on a similar ability to cook sweet and sour. What people may not be equally familiar with is the relentless focus on cost reduction and productivity growth that pervades the company. Reliance's employee cost is 4 per cent of revenues, against 15-20 per cent of its competitors. Its sales and distribution cost, at 3 per cent of revenues, is about a third of global standards. It has continuously pushed down its cost for energy and utilities to 3 per cent of revenues, largely through 100 per cent captive power generation that costs the company 4.5 cents per kilowatt-hour; well below Indian utility costs, and about 30 per cent lower than the global average. Similarly, its capital cost is 25-30 per cent lower than its international peers due to its legendary speed in plant commissioning and its relentless focus on reducing the weighted average cost of capital (WACC) that, at 13 per cent, is the lowest of any major Indian firm.
A Bias for Growth
Comparing major Indian companies in key industries with their global competitors shows that Indian companies are running a major risk. They suffer from a profound bias for growth. There is nothing wrong
with this bias, as Reliance has shown. The problem is most look more like Essar than Reliance. While they love the sweet of growth, they are unwilling to face the sour of productivity improvement. Nowhere is this more amply borne out than in the consumer goods industry where the Indian giant Hindustan Lever has consolidated to grow at over 50 per cent while its labour productivity declined by around 6 per cent per annum in the same period. Its strongest competitor, Nirma, also grew at over 25 per cent per annum in revenues but maintained its labour productivity relatively stable. Unfortunately, however, its return on capital employed (ROCE) suffered by over 17 per cent. In contrast, Coca Cola, worldwide, grew at around 7 per cent, improved its labour productivity by 20 per cent and its return on capital employed by 6.7 per cent. The story is very similar in the information technology sector where Infosys, NIIT and HCL achieve rates of growth of over 50 per cent which compares favorably with the world's best companies that grew at around 30 per cent between 1994-95. NIIT, for example, strongly believes that growth is an impetus in itself. Its focus on growth has helped it double revenues every two years. Sustaining profitability in the face of such expansion is an extremely challenging task. For now, this is a challenge Indian InfoTech companies seem to be losing. The ROCE for three Indian majors fell by 7 per cent annually over 1994-96. At the same time IBM Microsoft and SAP managed to improve this ratio by 17 per cent. There are some exceptions, however. The cement industry, which has focused on productivity rather than on growth, has done very well in this dimension when compared to their global counterparts. While Mexico's Cemex has grown about three times fast as India's ACC, Indian cement
companies have consistently delivered better results, not only on absolute profitability ratios, but also on
absolute profitability growth. They show a growth of 24 per cent in return on capital employed while
international players show only 8.4 per cent. Labour productivity, which actually fell for most industries
over 1994-96, has improved at 2.5 per cent per annum for cement.
The engineering industry also matches up to the performance standards of the best in the world.
Companies like Cummins India have always pushed for growth as is evidenced by its 27 per cent rate of
growth, but not at the cost of present and future profitability. The company shows a healthy excess of
almost 30 per cent over WACC, displaying great future promise. BHEL, the public sector giant, has seen
similar success and the share price rose by 25 per cent despite an indecisive sensex. The only note of
caution: Indian engineering companies have not been able to improve labour productivity over time,
while international engineering companies like ABB, Siemens and Cummins Engines have achieved
about 13.5 per cent growth in labour productivity, on an average, in the same period. The pharmaceuticals
industry is where the problems seem to be the worst, with growth emphasized at the cost of all other
performance. They have been growing at over 22 per cent, while their ROCE fell at 15.9 per cent per
annum and labour productivity at 7 per cent. Compare this with some of the best pharmaceutical
companies of the world – Glaxo Wellcome, SmithKline Beecham and Pfizer –who have consistently
achieved growth of 15-20 per cent, while improving returns on capital employed at about
25 per cent and labour productivity at 8 per cent. Ranbaxy is not an exception; the bias for growth at the
cost of labour and capital productivity is also manifest in the performance of other Indian Pharma
companies. What makes this even worse is the Indian companies barely manage to cover their cost of
capital, while their competitors worldwide such as Glaxo and Pfizer earn an average ROCE of 65 per
cent. In the Indian textile industry, Arvind Mills was once the shining star. Like Reliance, it had learnt to
cook sweet and sour. Between 1994 and 1996, it grew at an average of 30 per cent per annum to become
the world's largest denim producer. At the same time, it also operated a tight ship, improving labour
productivity by 20 per cent. Despite the excellent performance in the past, there are warning signals for
Arvind's future. The excess over the WACC is only 1.5 per cent, implying it barely manages to satisfy its
investor’s expectations of return and does not really have a surplus to re-invest in the business.
Apparently, investors also think so, for Arvind's stock price has been falling since Q4 1994 despite such
excellent results and, at the end of the first quarter of 1998, is less than Rs 70 compared to Rs 170 at the
end of 1994. Unfortunately, Arvind's deteriorating financial returns over the last few years is also typical
of the Indian textile industry. The top three Indian companies actually showed a decline in their return
ratios in contrast to the international majors. Nike, VF Corp and Coats Viyella showed a growth in their
returns on capital employed of 6.2 per cent, while the ROCE of Grasim and Coats Viyella (India) fell by
almost 2 per cent per annum. Even in absolute returns on assets or on capital employed, Indian companies
fare a lot worse. While Indian textile companies just about cover their WACC, their international rivals
earn about 8 per cent in excess of their cost of capital.
1. Is Indian companies running a risk by not giving attention to cost cutting?
2. Discuss whether Indian Consumer goods industry is growing at the cost of future profitability.
3. Discuss capital and labour productivity in engineering context and pharmaceutical industries in India.
4. Is textile industry in India performing better than its global competitors?
CASE 6
Mr. and Mrs. Sharma went to Woodlands Apparel to buy a shirt. Mr. Sharma did not read the price tag on the piece selected by him. At the counter, while making the payment he asked for the price. Rs. 950 was the answer. Meanwhile, Mrs. Sharma, who was still shopping came back and joined her husband. She was glad that he had selected a nice black shirt for himself. She pointed out that there was a 25% discount on that item. The counter person nodded in agreement. Mr. Sharma was thrilled to hear that “It means the price of this shirt is just Rs. 712. That’s fantastic”, said Mr. Sharma. He decided to buy one more shirt in blue color. In no time, he returned with the second shirt and asked them to be packed. When he received the cash memo for payment, he was astonished to find that he had to pay Rs. 1,900 and Rs. 1,424. Mr. Sharma could hardly reconcile himself to the fact that the counter person had quoted the discounted price which was Rs. 950. The original price printed on the price tag was Rs. 1,266.
1. What should Mr. Sharma have done to avoid the misunderstanding?
2. Discuss the main features involved in this case.
CASE 7
The Benson Hotel, a mid‐sized independent property required new leadership. Mike Schwartz,
Vice‐president of operations, pondered his next move as he reviewed last month’s financial
statements. The Benson was an eighty‐five‐room three‐star property with a full‐service
restaurant, lounge, banquet and health club facilities. The rapidly changing marketplace and
new competition from well‐established franchises had made Mike’s job and the Benson’s
position more tenuous. Mike decided to commission a consultant’s report on the property. He
called up his longtime friend Jim Burke, who had worked for major chains across the country
and was now a hospitality consultant.
“Jim, how are you old buddy?” Mike asked.
“I am doing very well Mike. This consulting work has run me off my feet. What can I do for you?”
Jim Asked.
“Well Jim, I need an independent review of the Benson. We’re holding our own but these
franchise guys with their management contracts are really getting aggressive,” Mike said.
“Yes, I know what you mean Mike. I have just completed a marketing study for a new building
across town. These guys have some great programs. You have to try and stay ahead of them,”
said Jim.
Mike asked, “Do you think you could visit the property and have some lunch next week? I would
like to start with an employee survey and some site work. You’ll be working alongside my
general manager, Sean Waters. Sean’s been with us for about two years. Jim, I have some
concerns about this guy and I’d like to have a fresh set of eyes look at what’s going on at the
Benson. Okay?”
Jim hesitated, “Okay Mike. How about next Thursday 10:00 a.m.? I’ll meet you in the lobby.”
“Wonderful, Jim. We’ll see you then.”
Sean waters had been recruited by Mike as a rising star. Sean’s background led Mike to believe
he possessed a true spirit for hospitality, especially in the food service area. Sean had worked his
way up in reputable full – service properties and restaurants while completing an undergraduate
degree in hospitability. So, what had gone so wrong at the Benson for Mike to feel he needed to
bring in a consultant to figure it out? Three months later Mike had an interim report on his desk.
Physical Plant Priorities
The following is a review of specific areas of the Benson Hotel that require attention.
Sales Office‐ Located just off the lobby, this space is open to the public and is well below
standards for this level of property. The property has worked hard to attract the corporate
market. A well‐renovated business center shared with a working sales area would enhance this
area gently.
Banquet Servery‐ Located on the lower level from the main kitchen, this area seems more of a
storage area, in fact this could serve as a limited holding area for banquet service. There is no
counterspace and no secure shelving to store dishes, glassware, or cutlery. Floors and walls are
in need of refinishing. Guests have gained access to this area on occasion.
Exterior Garbage Area‐ The main compactor located in the rear parking lot of the hotel should
be enclosed. It is unsightly to guests and can be viewed from the road by surrounding
residences. A possible solution would be to pour a concrete slab allowing for drainage and build
an enclosure on three sides to ensure access for pick‐up.
Access for persons with disabilities –Presently, the Benson has no access or rooms for guests
with disabilities. At least two units should be converted for this purpose. The main
reconfigurations are the bathrooms and doorways. On a few occasions guests with disabilities
were observed leaving the hotel for other properties in the area that had such facilities. It is a
good marketing initiative and may become necessary to maintain the rating of the property.
Lobby‐ The lobby chairs and broadloom should be upgraded to reflect the marketplace and
reputation of the property.
Back Office Computer– There is presently no stand‐ alone back office computer. The computers
on the property are dated and solely devoted to a property management system that is not
Windows based. The following functions could be served with a back office computer.
• Inventory analysis
• Database marketing
• Effective and professional word processing
Parking Lot –The rear parking lot is of particular concern; it does not reflect a three‐star
property.
Human Resources
The Benson Hotel, like many others before it, had over the years placed people in positions of
authority with little or no training to support their efforts. This was true in the following revenue
centers.
Dining Room – During high season the dining room enjoys record covers on many nights.
However, there was one very stressful situation observed. The staffing was mixed with senior
staff followed by poorly trained “warm bodies”. The situation was made worse by the
supervisor, Rachel, who was perceived by the staff as unfair, unapproachable, and often playing
favorites with her friends and family. Rachel, in all fairness, has had no training and was clearly
not the person for the job. She repeatedly showed disrespect for her fellow workers and
kitchen staff. Unfairness was clearly displayed in the allotment of high‐gratuity‐paying work such
as banquets and bus tours. Rachel played favorites. She would schedule herself and friends to
serve high‐gratuity events. If you were not her favorite, you were relegated to breakfast shifts or
similar low‐gratuity work. An example is the new girl, Donna, who Rachel hired this summer.
Rachel is already giving preferential shifts to Donna over Isabel, who has been at the Benson for
more than five years. Rachel based her decision on Isabel’s poor performance, which Rachel said
other employees would agree with. This was not the case when fellow workers were asked.
Rachel had also threatened to lay off Isabel in the slow months instead of Donna or Rachel’s
daughter Lucy. This was clearly an old management style and unacceptable in any operation.
Rachel is also resentful that the kitchen receives 25 percent of group meal gratuities. In her
opinion they do not deserve it. This feeling has permeated among her allies, instilling an “us
against them” animosity between the kitchen and service staff.
Kitchen Operation – The kitchen staff is competent, but leadership is seriously lacking in this
area. James, the interim kitchen supervisor, has difficulty coping with the restricted
responsibilities placed on him and often projects these feelings onto fellow staff. This attitude
also has a further negative effect on Rachel and her staff in the dining area. Chief Wilhelm left
three months ago and left little incentive for James to perform his duties as sous‐chef. James is
somewhat adrift, constantly complaining that he is doing a chef’s job and receiving cook’s pay.
Management controls and reporting such as inventory are inaccurate at best, with related
reports poorly presented. Production and food handling require improvement from a quality
and sanitation point of view. It seems that many foods taken out for preparation or serving then
are left out in a hot kitchen to deteriorate or go to waste. Scheduling of kitchen employees does
not seem to relate to business peaks and valleys. This has resulted in calling in casual kitchen
staff on short notice, resulting in paid‐outs over the counter. One such employee is Gerald, the
dishwasher who is Lucy’s boyfriend. Rachel on occasion has taken it upon herself to call Gerald
in for dishwashing duty when clearly it is James’s responsibility to make the call. This situation
provides an opportunity for Rachel to extend her influence beyond the realm of her authority
and has led to increased friction between Rachel and James.
Employee Audit
This part of Jim’s report was a detailed employee audit interviewing employees on issues from
the parking lot all the way up to the general manager. It provided Mike with some food for
thought. Jim’s opening comments was: “if I had to make only one general statement about the
relationship between the employer and employees at this time, I would have to say that it is
limping along at a slow, steady pace. Most of the employees appear satisfied with the type of
work they are doing and they speak well for the company.” Under the section “Lack of
Credibility on the part of the General Manager,” Mike’s worst fears were confirmed. Jim’s report
continued, “As far as the remainder of the employees are concerned, they do what they have to
and then ignore the general manager. His level of credibility with these employees is zero. One
employee was very philosophical about it when she said “At least we know what we have to
deal with, and we are learning how to deal with him. If they get rid of him we could get
someone worse.” Supporting comments from employees included:
• The general manager is always right.
• The morale of the employees varies with the moods of the general manager
• The general manager intimidates some employees.
• The general manager tries to impress the upper management by pitching in to help
when they are here, but when they are not here he doesn’t lift a finger.
Jim summed up this section of his report to Mike like this: “This is a case of employees
working well in spite of the general manager rather than because of him. The main problem
with this situation is that a reputable company such as the Benson Hotel cannot support the
actions of a general manager with this type of comportment and still maintain a workable
relationship with its employees. My opinion at this point is that something has to change.”
1. Do you feel it was necessary for Mike to commission a consultant’s report on the Benson? Why
or why not? How would you have approached the situation?
2. Identify and propose solutions for the supervisory challenges in the kitchen and dining areas of Benson Hotel.
CASE 8
The Rainbow Golf resort had something to celebrate. The 120‐ unit golf resort consisting of villas and
condominiums had recently been “re‐branded” from a franchise to an independent property. The new
owner, Ken Okura, was reviewing the present organizational structure of the Rainbow along with the
files of key personnel presently running the operation. During the transition period Ken had recruited his
own team including a Vice‐President of operations, Director of sales and marketing and Director of Food
and Beverage to restructure the organization; however, he still had a few key areas to fill in. In the past,
each member of the resort’s management team had staked out his or her own turf with little internal
communication. As a case in point, ken often noticed Shirley, the accountant, regularly directing the
front desk on policies and procedures. All this happened under the watch of Jeremy, the resort’s Rooms
Division Manager, who didn’t seem to take notice of such actions. Ken thought that this overlap of
authority surely must confuse the front desk staff.
The transition period had provided Ken with a window of opportunity to evaluate the line and
supervisory staff. Ken had retained Ted Barrow, a human resources consultant; his report’s findings
were quite a surprise to Ken. Ted’s report began with the following staff concerns:
• The management does not work together. There is no teamwork, only “flexing” for power.
Managers are out to protect their turf. This attitude pervades the resort.
• There is no apparent overall direction for the resort. If there is, it is not being communicated
throughout the organization.
• There is no general manager or controller on site. The feeling is that if these people were
around, conflict among the department heads could be avoided.
• There is insufficient training. Employees are thrown into their jobs without being ready to
perform them properly. They should have proper preparation before they have to deal with
guests.
• Some departments (front desk in particular) are terribly understaffed. This causes service
problems as well as high staff turnover.
• The staff morale is low. Employees work in separate departments and get caught in a rut. There
is no overall team spirit. It’s more like “every man for himself.”
• There is little or no awareness of how other departments operate. This knowledge is necessary
to help us understand how we impact each other.
• Many people are currently unhappy. The labor pool is small, and if they leave it will be tough to
replace them. Management should work to keep the staff happy.
• There seems to be a consensus that staff members want to be able to provide good service, but
too many constraints are placed on them to be able to do so.
• It is difficult to know who to go if someone has a problem with his or her manager. There should
be someone designated as the resort manager so that employees have someone to
communicate with should the need to do so arise.
Ken assembled his new team to map out strategies to address the operational challenges and employee
concerns.
1. Identify and describe four short‐term operational strategies Ken should implement immediately
at the Rainbow Golf Resort?
2. Which form of top‐down communication would be most suitable for the Rainbow Golf Resort to
achieve its objectives?
CASE 9
The Pierre has been able to maximize profitability through a sales program that realigned its sales mix.
The Pierre, a luxury hotel in New York City, experienced high demand and periods of limited availability.
An analysis of the business indicated that gross operating profit was not as much as it could be because
groups were occupying rooms at discounted rates during peak periods of the year. As a result, new track
rate business (nondiscounted) was often turned away.
It was calculated that The Pierre sells out for at least 100 days a year. During these dates the hotel could
command rack rate. Group business was then targeted for the shoulder and softer time periods. Based
on historic patterns of business, a limitation was placed on the number of rooms set aside for groups for
each day of the year. A maximum of 10 percent of all rooms are set aside for groups during highpressure
time periods.
A second strategy involves going after new business. Analysis of existing demand determined that the
hotel had relied heavily on Wall Street business. That segment of the market was weak during poor
economic times. As a result, the hotel looked at business from the entertainment and fashion industries.
Specially, the Los Angeles area was targeted.
Noting that average rates in cities such as London and Paris are high, management sought to increase
the number of international guests. This segment is more accustomed to paying higher rates. A sales
manager was hired for the Japanese market. The downside is that the higher the rates guests pay, the
more they (rightfully) demand in services. A full‐time training manager was hired and an additional halftime
position added to ensure that the desired level of service was reached. Attitude is the number one
factor in hiring for most positions.
Major press tours in Europe are very important in bringing in new business by issuing personal
invitations to journalists and travel agents to visit the hotel on familiarization tours. A second strategy
the hotel has found useful is to reorganize the sales office such that every sales manager performs
account management for both individual and group sales.
Another organizational change is to switch the responsibilities of selling the hotel and managing the
inventory from the reservations manager to senior management. Because of the increased importance
of this function, senior managers get more involved in analyzing the demand in the city as well as for the
past five years of hotel occupancy, and keeping tight tabs on room sales, yield, and revenue per
available room (REVPAR).
1. Would this kind of plan work for any sort of hotel chain?
2. Does this type of strategy helps in increasing the revenues of the hotel.
CASE 10
The climate dimensions described relates to a specific management strategy.
Clarity:
ô€‚ƒ Dana Corporation has a corporate policy that, in part, says “The people who know best how the
job should be done are the ones doing it.”
Commitment:
• Boston’s New England Securities Corporation issues T‐shirts to its employees with the slogan
“See it, Do it, Own it.”
• To develop a shared vision, United Technologies Corporation says:
􀂃 Talk honestly and directly to employees about their performance;
􀂃 Give people the information they need to do the job;
􀂃 Let employees influence their own performance objectives;
ô€‚ƒ Walk around‐be visible;
􀂃 Listen to others before evaluating their ideas;
􀂃 Demonstrate high performance standards in your own behavior;
ô€‚ƒ Let people know your long‐term direction.
Standards:
• The quality of written reports increased after the CEO of Winter Gardens Salad Company stamps
“Read by Harry” on the report before sending it back to employees.
• Supervisors at the Mirage Treasure Island Hotel tell employees what has to be done and the
reason why. Employees can refuse to perform the job if they are not satisfied with the
explanation.
• Once a month any employee of Chef Allen’s restaurant can take a friend or spouse out to dinner
at a competing restaurant and the owner of Chef Allen will pay up to $50 of the bill. In return
the employee must prepare a one‐page written report on the experience and present a verbal
report to the entire staff. Employees learn to see things from the customers’ perspective.
Responsibility:
• MCI says “We don’t shoot people who make mistakes, we shoot people who don’t take risks.”
• When Rockwell Semiconductor increased the spending limit for employees from $25 to $200,
spending dropped 60 percent. People looked at the money as if it was their own.
• At Parisian’s department stores the only person who can say “No” to a customer is the store
manager.
• Lyondell Petrochemical removed layers of supervision and replaced the chain of command with
encouragement to let employees react to what is happening and just make their own decisions.
• The Clarion Hotel in Virginia Beach has employees play for prizes as they participate in a
monthly version of the game “The Price Is Right” using items in the hotel. Employees become
more aware of the cost of various items they use on a daily basis.
• Instead of waiting for price checks, cashiers at Target ask customers what the price is on
unmarked items. If the figure seems reasonable, it is entered without supervisory approval.
• Any Ritz‐Carlton employee has the authority to spend up to $2,000 to take care of a guest
complaint.
Recognition:
• Original Copy Centers give all employees personalized business cards.
Team Work:
• Advanced Micro Devices bans executive perks such as executive dining rooms and reserved
parking places.
• When employees have to work overtime, BurJon Steel Service Center sends flowers and free
dinner coupons to the spouses or significant others of the employees.
1. How does the organizational climate in a hotel translate into total satisfaction of guests?
2. What can managers do to ensure that such a climate is being created in his or her operations?
CASE 11
THE EU’S LAGGING COMPETITIVENESS
In a report produced for the European Commission, published in November 1998, it was argued that
the EU lags behind the USA and Japan on most measures of international competitiveness. Gross
domestic product per capita, sometimes used as an indicator of international competitiveness at the
country level, was 33 per cent lower in the EU as a whole than in the USA and 13 per cent lower
than in Japan. The EU’s poor record in creating employment was singled out for particular criticism.
As this appeared to apply across the board in most industrial sectors, it suggested that the EU’s poor
performance related to the business environment in general and, in particular, to the inflexibility of
Europe’s labour markets for goods and services. A shortage of risk capital for advanced
technological development and high cost and inefficiency of Europe’s financial services were also
highlighted by the report. For one reason or another, European industries generally lag behind in
technology industries. If measured by the number of inventions patented in at least two countries, the
USA is well ahead of most European countries, as well as Japan. Despite these shortcomings, the
report’s authors focus attention on flexible markets, market liberalisation, and the creation of a
competitive business environment rather than on targeted intervention by the EU or national
authorities
1. Is gross domestic product per capita a useful indicator of International competitiveness in the EU?
2. Is it fair to point the blame for the EU’s poor international competitiveness at inflexible labour
markets, regulated goods and services markets, and a general lack of competition? What
alternative explanations might be suggested?
CASE 12
PERU
Peru is located on the west coast of South America. It is the third largest nation of the continent (after
Brazil and Argentina), and covers almost 500,000 square miles (about 14 per cent of the size of the
United States). The land has enormous contrasts, with a desert (drier than the Sahara), the towering
snow-capped Andes mountains, sparkling grass-covered plateaus, and thick rain forests. Peru has
approximately 27 million people, of which about 20 per cent live in Lima, the capital. More Indians
(one half of the population) live in Peru than in any other country in the western hemisphere. The
ancestors of Peru’s Indians were the famous Incas, who built a great empire. The rest of the
population is mixed and a small percentage is white. The economy depends heavily on agriculture,
fishing, mining, and services. GDP is approximately $115 billion and per capita income in recent
years has been around $4,300. In recent years the economy has gained some relative strength and
multinationals are now beginning to consider investing in the country. One of these potential
investors is a large New York based that is considering a $25 million loan to the owner of a Peruvian
fishing fleet. The owner wants to refurbish the fleet and add one more ship. During the 1970s, the
Peruvian government nationalised a number of industries and factories and began running them for
the profit of the state. In most cases, these state-run ventures became disasters. In the late 1970s, the
fishing fleet owner was given back his ships and are getting old and he needs an influx of capital to
make repairs and add new technology. As he explained it to the NEW YORK banker: “fishing is no
longer just un art. There is a great deal of technology involved. And to keep costs low and be
competitive on the world market , you have to have the latest equipment for both locating as well
as catching and then loading and unloading the fish.”Having reviewed the fleet owner’ operation, the
large multinational bank believes that the loan is justified. The financial institution is concerned ,
however , that the Peruvian government might step in during the next couple of years and again
take over the business . If this were to happen, it might take an additional decade, for the loan to be
repaid. If the government were to allow the fleet owner to operate the fleet the way he has over the
last decade, the loan could be rapid within seven years. Right now, the bank is deciding on the
specific terms of the agreement. Once these have been worked out , either a loan officer will fly
down to lima and close the deal or the owner will be asked to come to NEW YORK for the signing.
Whichever approach is used, the bank realize that final adjustments in the agreement will have
to be made on the spot. Therefore, if the bank sends a representative to Lima, the individual will have
to the authority to commit the bank to specific terms. These final matters should be worked out within
the next ten days.
1. What are some current issues Facing Peru? What is the climate for doing business in Peru today?
2. Would the bank be better off negotiating the loan in New York or in Lima? Why?
CASE 13
Which Company Is Transnational?
Four senior executives of companies operating in many countries speaks:
COMPANY A
We are transnational company. We sell our products in over 80 countries, and we manufacturer in 14
countries. Our overseas subsidiaries manage our business in their respective countries. They have
complete responsibility for their country operations including strategy formulation. Most of the key
executives in our subsidiaries are host-country nationals, although we still rely on home-country
persons for the CEO and often the CFO (chief financial officer) slots. Recently, we have divided the
world regions and the United States. Each of the world regions reports to our world trade
organization, which is responsible for all of our business outside United States.
The overseas companies are responsible for adapting to the unique market preferences that exist
in their country or region and are quite autonomous. We are proud of our international reach: We
manufacture not only in the United States but also in Europe and the United Kingdom, Latin
America, and Australia.
We have done very well in overseas markets, especially in the high-income countries with the
exception of Japan. We would like to enter the Japanese market, but let’s face it, Japan is a protected
country. There is no level playing field, and as you no doubt know, the Japanese have taken
advantage of the protection they enjoy in their home country to launch an export drive that has been a
curse for us. Our industry and our home country (the United States) has been a principle target of the
Japanese, who have taken a real bite out of our market share here in the United States. We are
currently lobbying for more protection from Japanese competition.
COMPANY B
We are a unique transnational media company. We do not dominate any particular area, but we have
an important presence on three continents in magazines, newspapers, and television. We have a global
strategy. We are a global communications and entertainment company. We’re in the business of
informing people around the world on the widest possible basis. We know how to serve the needs of
our customers who are readers, viewers, and advertisers. We transfer people and money across
national boundaries, and we know how to acquire and integrate properties as well as how to start up a
new business. We started out as Australian, and then the weight of our main effort is in the United
States. We go where the opportunity is because we are market driven.
Sure, there are lots of Australians in the top management of this company, but we started in
Australia, and those Aussies know our business and the company from the ground up. Look around
and you’ll see more and more Americans and Brits taking the top jobs. We stick to English because I
don’t believe that we could really succeed in foreign print or broadcast. We know English, and so far
the English-speaking world is big enough for us. The world is shrinking faster than we all realize, and
to be in communications is to at the center of all change. That’s the excitement of what we’re doing –
and also the importance.
COMPANY C
We’re a transnational company. We are committed do being the number-one company in our industry
worldwide. We do all of our manufacturing in our home country because we have been able to
achieve the lowest cost and the highest quality in the world by keeping all engineering and
manufacturing in order to maintain our cost advantage. We are doing this reluctantly but we believe
that the essence of being global is dominating markets and we plan to do whatever we must do in
order to maintain our position of leadership.
It is true that all of our senior managers at home and in most of our foreign markets are homecountry
nationals. We feel more comfortable with our own nationals in key jobs because they speak
our language and they understand the history and the culture of our company and our country. It
would be difficult for an outsider to have this knowledge, which is so important to smooth-working
relationships.
COMPANY D
We are a transnational company. We have 24 nationalities represented on our headquarters staff, we
manufacture in 28 countries, we market in 92 countries, and we are committed to leadership in our
industry. It is true that we are backing off on our commitment to develop business in the Third World.
We have found it extremely difficult to increase sales and earnings in the Third World, and we have
been criticized for our aggressive marketing in these countries. It is also true that only home-country
nationals may own voting shares in our company. So, even though we are global, we do have a home
and a history and we respect the traditions and sensibilities of our home country.
We want to maintain our number-one position in Europe, and over time achieve the same position
of leadership in our target markets in North America and Japan. We are also keeping a close eye on
the developing countries of the world, and whenever we see a country making the move from low
income to lower middle, or from lower middle to upper middle, or from upper middle to high income
we commit our best effort to expand our positions, or, if we don’t have a positions, to establish a
position. Since our objective is to achieve an undisputed leadership position in our industry, we
simply cannot afford not to be in every growing market in the world.
We have always had a European CEO, and this will probably not change. The executives in this
company from Europe tend to serve all over the world, whereas the executives from the United States
and Japan serve only in their home countries. They are very able and valuable executives, but they
lack the necessary perspective of the world required for the top jobs here at headquarters.
1. Which company is transnational?
2. What are the attributes of a transnational company?
3. What is the difference between a domestic, international, multinational, global, and transnational
company?
4. At what stage of development are your company and your line of business today? Where should you be.
CASE 14
Parker Pen Co. (A)
INTRODUCTION
The meeting at sunny Palm Beach concluded with nary a whimper of dissent from its participants.
After years of being run as a completely decentralized company whose managers in all corners of the
world enjoyed a high degree of flexibility, Parker Pen Co., Janesville, Wisconsin, was forced to
reexamine itself. The company had enjoyed decade after decade of success until the early 1980s. By
this time, Parker faced strong competitive threats and a deteriorating internal situation. A new
management team was bought in from outside the company – an unprecedented step for what had
been until then an essentially family-run business. At the March 1984 Palm Beach meeting, this new
group of decision makers would outline a course of action that would hopefully set Parker back on a
path to success.
The men behind the new strategy were supremely confident of its chances for success – and with
good reason. Each was recognized as a highly skilled practitioner of international business and their
combined extensive experience gave them an air of invincibility. They had been recruited from larger
companies, had left high-paying, rewarding jobs, and each had come to Janesville with a grand sense
of purpose. For decades, Parker had been a dominant player in the pen industry. In the early 1980s,
hoe-ever, the company had seen its market share dwindle to a mere 6 percent and, in 1982, net
income plunged a whopping 60 percent.
To reverse this decline, Parker recruited James Peterson, an executive vice president at R.L.
Reynolds, as the new president and CEO. Peterson hired Manville Smith as president of the writing
instruments group at Parker Smith, who was born in Ecuador and had a broad international
background, came from 3M where he had been appointed division president at the tender age of 30.
Richard Swart was vice president/marketing of the writing instruments group. He spent 11 years at
the advertising agency BBDO and was an expert on marketing planning and theory. Jack Marks was
head of writing instruments advertising. Marks came to Parker from Gillette, where, among other
things, he assisted in the worldwide marketing of Paper Mate pens. Rounding out the team was Carlos
Del Nero, manager of global marketing planning, who brought with him considerable international
experience at Fisher-Price. Each of these men was convinced that Parker would right itself by
following the plan they unveiled at Palm Beach.
A BRIEF HISTORY OF PARKER PEN
The “Rolls Royce” of the Pen Industry
The Parker name has been identified with pens since 1888 when George S. Parker delighted inksplotched
pen users everywhere by introducing a leakproof fountain model called the Parker Lucky
Curve. Parker Pen would eventually blossom into America’s, if not the world’s, largest and bestknown
pen market. Parker’s products, which would eventually include ballpoint pens, felt-tip pens,
desk sets, mechanical pencils, inks, leads, erasers, and, of course, the fountain pen, were also known
for their price tags. In 1921, for example, Parker introduced the Duofold pen. The Duofold, even
though it was comparable to other $3 pens on the market, was extravagantly priced at $7. Parker was
able to charge a premium price because of its reputation for quality and style, and its skill in
positioning products in the top price segment.
Parker’s position as America’s leading pen marker was solidified during the years when the pen
was mainly viewed as a gift item. High school and college graduates in the 1940s and 1950s, for
example, were quite likely to receive a Parker “51” fountain pen (priced at & 12.50) commemorating
their achievement. Indeed, it was with a “51” that General Douglas MacArthur signed the Japanese
Peace Treaty in 1945. Parker’s stylish products and high profile name would keep it at the top of the
pen market until the late sixties as well as a few foreign brands, knocked them out of first place once
and for all.
Of course, Parker would not have lost its hold on the market had it not made some oversights
along the way. In addition to a more competitive environment, Parker failed to come to terms with a
fundamental change in the pen market – the development of the disposable, ballpoint market. When
Parker unveiled the $25 “75” pen in 1963, it showed that it remained committed to supplying high
showed that it remained committed to supplying high priced pens to the upper end of the market. As
the 1960s wore on, a clear trend toward cheap ballpoint and soft-tip pens developed. Meanwhile,
Parker’s only ultimately successful addition to its product range in the late sixties was the “75”
Classic line, yet another high-priced pen.
A Brief Flirtation with Low-Priced Pens
Parker did, however, make an effort to compete in the lower price segment of the market in the late
1960s only to see it fail. In an attempt to capitalize on the trend toward inexpensive pens, Parker
introduced the T-Ball Jotter, priced at $1. 98. The success of the Jotter led it to move even further
down the price ladder when it acquired Ever sharp. Whereas the Jotter had given Parker reason to
believe it could make the shift from pricy pens to cheap pens with little or no difficulty, the Ever
sharp experience proved to be different. George Parker, a grandnephew of the company’s founder and
president of Parker at the time, stated the reasons for the ever sharp failure, as well as its
consequences:
All the market research surveys said go lower, go lower, go lower, that’s where the business is.
So I said, ‘Go lower? Fine. But we don’t know how.’ We bought Ever sharp and tried to run it
ourselves, and we couldn’t do it. our people just couldn’t think in terms of big units, and they didn’t
know how to sell people on the lower-priced end of the business – grocers, supermarkets, rack
jobbers. The result was, Bic and Paper Mate were cleaning up in the lower-priced end, Cross in the
high, and Parker was getting up, but our costs went up faster, and our profits were squeezed.
The 1970s: The Illusion of Success
Despite the difficulties Parker encountered when it left its niche in the upper end of the pen market,
the company experienced a healthy period of growth and profitability for most of the 1970s. Demand
for its products remained strong, and its worldwide markets expanded significantly due to a rise in
consumer income and increasing literacy rates in much of the Third World. Parker also chose to
diversify during this decade, and its most noteworthy acquisition, Manpower, Inc., proved to be a
temporary-help firm, Parker was the slightly more profitable of the two. With the boom in temporary
services in the late seventies and early eighties, however, Manpower eclipsed Parker in sales and
earnings and eventually subsidized its parent company during down periods.
Why did parker fall from its position of leadership in the writing instrument market” there were
many reasons, and one of the most important was the weakening of the U.S. dollars. At its peak,
Parker accounted for half of all U.S. exports of writing instruments and 80 percent of its total sales
came from 154 foreign countries. Parker was especially strong in Europe, most particularly in the
United Kingdome. When sales in the strong European currencies were translated into dollars, Parker
earned huge profits.
The downside of a weak dollar, however, was that it gave Parker the illusion that it was a wellrun
company. In fact, throughout the 1970s, Parker was a model of inefficiency. Manufacturing
facilities were dated and inefficient. Production was so erratic that the marketing department often
had no idea what type of pens they would be selling from year to year or even month to month. Under
the leadership of George Parker, nothing was done by company headquarters to update these facilities
or to develop new products. As a result, subsidiaries and distributors around the world saw fit to
develop their own products. By the end of George Parker’s reign, the company’s product line
included 500 writing instruments.
That distant subsidiaries would have the leeway to make such decisions was not at all unusual at
Parker, for it had long been known as one of the most globally decentralized companies in the world.
Decentralization, in fact, was something that Parker took pride in and considered to be vital to its
success as a multinational. Yet it was this very concept that Peterson and his new management team
would hold to be responsible for much of what ailed Parker Pen.
PARKER’S GLOBAL OPERATIONS BEFORE PETERSON
In addition to having a hand in manufacturing and product-line decisions, Parker’s subsidiaries
developed their own marketing strategies. More than 40 different advertising agencies promoted
Parker pens in all the corners of the globe. When Peterson came to Parker, he was proudly informed
that the company was a “federation” of autonomous geographical units. The downside to the
“federation” concept, Peterson though, was that home country management often lacked the
information needed to make and coordinate basic business decisions. Control was so completely
decentralized that Parker didn’t even know how many pens it was selling by the time Peterson and his
group arrived.
On the other hand, decentralization obviously had its positive aspects, most noticeably in the field
of advertising. Pens mean different things to different people. Whereas Europeans are more likely to
choose a pen based on its style and feel, a consumer from a lesser-developed country in the seventies
viewed the pen as nothing less than a badge of literacy. In additional, tastes varied widely from
country to country. The French, for example, remained attached to the fountain pen. Scandinavians,
for their part, showed a market preference for the ballpoint. The logic behind having so many
different advertising agencies was that, even if it appeared to be somewhat inefficient, in the end the
company was better off from a sales standpoint.
Some of the individual advertising agencies were able to devise excellent, imaginative
campaigns that struck a responsive chord among their local audiences. One example was the Lowe
Howard-Spink agency in London. The Parker U.K. division became the company’s most profitable
during the tenure of the Lowe agency. An example of its creativity is an ad is a picture of a dead
plumber, on his back, with a giant Parker pen protruding from his heart. Part of the text is as follows:
Do you know plumbers who never turn up?
Hairdressers who missed their vocations as butchers?
Drycleaners who make your stains disappear – and your clothes with them?
Today, we at Parker give you the chance to get your own back.
Not only are we offering a beautiful new pen called the Leque which owes its deep luster to a Chinese
technique 2000 years old, but we are attempting to revive something that went out when the telephone
came in.
The well-armed, witty, malicious dart.
Although the Parker U.K. division was a success, however, the company’s general inefficiencies,
loss of market share, and lack of strategic direction were finally revealed in the early 1980s with the
rise of the U.S. dollar. Parker’s financial decline was even more precipitous than the dollar’s increase.
When the huge 1982 losses were registered, Peterson was brought in from R.J. Reynolds to try and
turn things around for Parker. He decided that every aspect of the company needed to be closely
examined, not the least of which was Parker’s decentralization of global operations.
1. What would you do if you were in James Peterson’s shoes in January 1982?
2. What changes, if any, would you make in Parker’s marketing strategy?
3. Which aspects of Parker’s structure would you discard? Which would you keep?
4. Assume that you are James Peterson and you have just hired a new management team composed
of highly qualified executives from outside companies. You and your new team are convinced
that you have the solution to Parker’s problems but there are many hold overs who disagree with
you. How would you implement your plan? To what extent would you incorporate the views of
Parker management into your plan?
Detailed information should form the part of your answer (Word limit 200 to 250 words).
1. Consider the equation Y=f(A,B,C,D,E,F,G), where Y stands for consumption of soft drinks
and D is the variable for cultural elements. How would this equation help a soft-drink
marketer understand demand for soft drinks in global markets?
2. The president of XYZ Manufacturing Company of Buffalo, New York, comes to you with a
license offer from a company in Osaka. In return for sharing the company’s patents and
know-how, the Japanese company will pay a license fee of 5percent of the ex-factory price of
all products sold based on the U.S. Company’s license. The president wants your advice what
would you tell him?
3. Imagine that you are the director of a major international lending institution supported by funds
from member countries. What one area in newly industrialized and developing economics would
be your priority for receiving development aid? Do you suspect that any member country will be
politically opposed to aid in this area? Why or Why not?
4. The principle problem in analyzing different forms of export financing is the distribution of risks
between the exporter and the importer. Analyze the following export financing instruments in this
respect:
(a) Letter of Credit
(b) Cash in advance
(c) Draft
(d) Consignment
(e) Open Account
