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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’.
…………..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.

Questions:

1.    State the strategy of Hindustan Unilever in your own words.
2.    At what different levels is strategy formulated in HUL?
3.    Comment on the strategic decision-making at HUL.
4.    Give your opinion on whether the shift in strategic decision-making from India to Unilever’s headquarters could prove to be advantageous to HUL or not.


CASE: 2    THE STRATEGIC ASPIRATIONS OF THE RESERVE BANK OF INDIA

The Reserve Bank of India (RBI) is India’s central bank or ‘the bank of the bankers’. It was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1935. The Central Office of the RBI, initially set up at Kolkata, is at Mumbai. The RBI is fully owned by the Government of India.
The history of RBI is closely aligned with the economic and financial history of India. Most central banks around the world were established around the beginning of the twentieth century. The Bank was established on the basis of the Hilton Young Commission. It began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. After independence, RBI gradually strengthened its institution-building capabilities and evolved in terms of functions from central banking to that of development. There have been several attempts at reorganisation, restructuring and creation of specialised institutions to cater to emerging needs.
………….e and build-up of momentum to achieve goals.
Historically, the RBI adopted the time-tested technique of responding to external environment in a pragmatic manner and making piecemeal changes. The dilemma in adoption of a comprehensive strategic plan was the risk of trading off the flexibility of the pragmatic approach to creating rigidity imposed by a set model of planning.

Questions:

1.    Consider the vision and mission statements of the Reserve Bank of India. Comment on the quality of both these statements.
2.    Should the RBI go for a systematic and comprehensive strategic plan in place of its earlier pragmatic approach of responding to environmental events as and when they occur? Why?









CASE: 3    THE INTERNATIONALISATION OF KALYANI GROUP

The Kalyani Group is a large family-business group of India, employing more than 10000 employees. It has diverse businesses in engineering, steel, forgings, auto components, non-conventional energy and specialty chemicals. The annual turnover of the Group is over US$2.1 billion. The Group is known for its impressive internationalisation achievements. It has nine manufacturing locations spread over six countries. Over the years, it has established joint ventures with many global companies such as ArvinMeritor, USA, Carpenter Technology Corporation, USA, Hayes Lemmerz, USA and FAW Corporation, China.
The flagship company of the Group is Bharat Forge Limited that is claimed to be the second largest forging company in the world and the largest nationally, with about 80 per cent share in axle and engine components. The other major companies of the Group are Kalyani Steels, Kalyani Carpenter Special Steels, Kalyani Lemmerz, Automotive Axles, Kalyani Thermal Systems, BF Utilities, Hikal Limited, Epicenter and Synise Technologies
The emphasis on internationalisation is reflected in the vision statement of the Group where two of the five points relate to the Group trying to be a world-class organisation and achieving growth aggressively by accessing global markets. The Group is led by Mr. B.N. Kalyani, who is considered to be the major force behind the Group’s aggressive internationalisation drive. Mr. Kalyani joined the Group in 1972 when it was a small-scale diesel engine component business.
……………Recent strategic moves include Kalyani Steels, a Group company, entering into a joint venture agreement in may 2007, with Gerdau S.A. Brazil for installation of rolling mills. An attempt to move out of the mainstream forging business was made when the Group strengthened its position in the prospective business of wind energy through 100 per cent acquisition of RSBconsult GmbH (RSB) of Germany. Prior to the acquisition, the Group was just a wind farm operator and supplier of components.



Questions:

1.    What is the motive for internationalisation by the Kalyani Group? Discuss.

2.    Which type of international strategy is Kalyani Group adopting? Explain.





























CASE 4:     THE STORY OF SYNERGOS UNFOLDS

Synergos is a young management and strategy consulting firm based at Mumbai. It was established in 1992 at a time when there were a lot of expectations among the industry people from the liberalisation policies that were started the previous year by the Government of India.
The consulting firm is an entrepreneurial venture started by Urmish Patel, a dynamic person who worked with a multinational consulting firm at the time. He left his comfortable position there to venture into the management consultancy industry. The motivation was to be ‘the master of his own destiny’ rather than being an employee working for others. Urmish comes from an upper middle-class Gujarati family, settled in a small town in Rajasthan. His father was a government servant who retired with a meagre pension. His mother is a housewife. His other siblings are all educated and well-settled in their respective careers and professions. Urmish is a creative individual, uncomfortable with the status-quo. ………….
Urmish is a strong proponent of the emergent strategy and is not in favour of tying Synergos to a fixed strategic posture. So are the other founder members, though at times they do talk about deciding on a niche such as SME organisations as clients and enterprise solutions as the core competence. In the highly fragmented consultancy industry where it is possible for even one person to set up an office in a commercial area and leverage connections to secure projects, Synergos is open to opportunities as they emerge, while trying to maintain the flexibility that has made it successful till now.





Questions:

1.    Identify the type of organisation structure being used at Synergos and explain how it works. What are the benefits of using this type of structure? What are the pitfalls?

2.    Express your opinion about whether the structure is in line with the recruitments of the strategy that Synergos is implementing.

3.    Based on the information related to the information, control and reward systems available in the case, examine whether these systems are appropriate for the type of strategy being implemented.




































CASE: 5    EXERCISING STRATEGIC AND OPERATIONAL CONTROLS AT iGATE GLOBAL SOLUTIONS

The Bangalore-based iGATE Global Solutions is the flagship company of iGATE Corporation, a NASDAQ-listed US-based corporation. Known earlier as Mascot Systems, it was set up in India in 1993, to offer staffing services. It acquired business process outsourcing (BPO) and contact centre businesses in 2003, making it an end-to-end IT and ITES service provider. Its service portfolio includes consulting, IT services, data analytics, enterprise systems, BPO/BSP, contact centre and infrastructure management services. iGATE has over 100 active clients and centres based in Canada, China, Malaysia, India, the UK and the US. Chairman, Ashok Trivedi and CEO Phaneesh Murthy, an ex-Infosys IT professional and their partners hold a major stake, with some participation by institutional and public investors. The revenues for 2006-2007 are over Rs. 805 crore and net profits, Rs. 49.6 crore.
……………due. The company, though, is an average paymaster, which disadvantage it tries to trade-off offering a more challenging work environment, quicker promotions and chances for practising innovation.
Critics say that that iGATE lacks the big-brand appeal of the larger players such as Infosys and Wipro, cannot compete on scale and is still under the shadow of its original business of body-shopping IT personnel.


Questions:

1.    Analyse the iGATE case to highlight how it could apply some of the strategic controls such as premise control, implementation control, strategic surveillance and special alert control.

2.    Analyse and describe the process of setting of standards at iGATE.

3.    Give your opinion on the effectiveness of the role of reward system in exercising HR performance management at iGATE and suggest what improvements are possible, given the environmental conditions in the IT/ITES industry in India at present.

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Note: Both the Sections are compulsory

Section 1: Solve both the Case Studies (2 * 20 Marks)

Case 1:

Each SAP system has its own history. This history grows over years. New processes and modules get added, the system upgrades to newer releases. Employees come and go and more and more programs emerge that are no longer completely understood by the staff. Some typical problems develop:

……………………
The employees don’t take seriously the time that passes while the computer is showing the sand glass. IT specialists know however that this time, multiplied by the number of users of a system holds a considerable cost saving potential.

Questions:

1.    What is the solution for these problems?






Case 2: A Day in the Life of an SAP Manager: Providing User-Friendly Solutions          

After so many years (dozens of years should I say) in IT I am still surprised to notice how difficult are the relationships between the users and the IT departments. Whatever technology, and how “high” this “tech” is it is strange to see the same behaviors from IT people against this very-difficult-to-control population of users.

……………………
At the end they will have two false impressions:
•    One is that they do a good job since nobody is complaining
•    Second is that the users have no real need for some task simplifications
And the whole company loses thousands of days of productivity that could be used in more interesting tasks.

Questions:

1.    Comment on the relevance of this article in today's times. Cite an example to support your comments.

2.    Write in not more than 500 words your ability to create wealth in the community/company you work in. Wealth may not necessarily be in terms of money. It may refer to your ability to contribute to the wealth of your organization. Write in the context of above article.

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Case 1:
Scripto, Inc. (B)1

At one time, Scripto, Inc., utilized the services of Audits and Surveys, a national marketing research firm, but, owing to budgetary restraints, Scripto eliminated marketing research and channeled its financial resources in other directions. As a result, the company had little of the data it required for important marketing decisions. For example, the company experienced great difficulty in securing comparative data for sales of its products and competitive products in retails outlets.
             Determined not to let the void of data affect the 19¢er, Scripto management decided again to consider using marketing research. While management was in general agreement that marketing research was an essential ingredient in marketing orientation and sales strategy, there were two viewpoints as to the type of marketing research needed. One group believed that market studies and data were most crucial to the success of the ¢er; hence, they favored using the services of marketing-research companies, such as Audits and Surveys or A.C. Nielsen Company. Both Audits and Surveys and Nielsen prepared bimonthly reports measuring sales and movements of products through stores (the former was used by Papermate). The major differences between the two research companies were (1) cost and (2) type of retail outlet sampled. It would cost Scripto $20,000 to use Audits and Surveys and $25,000 to use Nielsen. Audits and Surveys recorded sales and products movement primarily of mass merchandisers (variety stores) and a relatively small sample of drugstores and grocery stores, while Nielsen sampled more drugstores and grocery stores than A and S but a smaller sample of variety stores.
    Another group, however, preferred a different course of action – the use of a marketing research firm that specialized in consumer buying patterns rather than market studies per se. This group contended that consumer research was more instrumental in the future of the 19¢er. Such research was typified by the data generated by the National Consumer Panel of Market Research Corporation of America.
    Decisions were required on (1) whether or not to again use marketing research; (2) if so, the type of marketing research most important for Scripto’s 19¢er, market studies and/or consumer buying patterns; and (3) the relationship between sales and marketing research. Management was especially concerned about the relationship between sales and marketing research.


Case 1 Questions:

What is your position on the three problems that had to be solved by Scripto? Defend your arguments.


Ans.
•    1. Scripto, Inc. By KSOM-10-12
•    2. Company Background• 1923 incorporated as Atlantic Manufacturing Company.• 1946 adopted the Scripto name.• 1969 acquired the Butane Match Corporation of America.• By 1964, decline in market share from 16% to 10% and dropped from second to fifth place in sales volume.• 1964 to 1966, sales again increased by 40%.
•    3. Scripto’s sales strategy• First entered market with 49 cent Graffiti pen, “me-too” product and annual advertising budget was approx. $250,000. But failed.• In 1971, it started developing a fine-line marker to equal Flair in quality and retail for 19 cents.• Scripto’s philosophy behind the pricing strategy was to sell a quality pen for considerably less than the competition.• Although the lower retail price meant less revenue per sale for the merchant and the manufacturer, the key to increasing profits was to increase sales volume.
•    4. Sales to Marketing orientation• In the past, Scripto had placed greatest emphasis on sales. Marketing plan being formed around sales plan. No marketing research and advertising program was greatly curtailed.• But Tokai Seiki management shifted from sales to marketing

•    orientation. Stronger trade support, better trained sales organization and more promotional programs
•    5. Scripto Management• Until late 1950s, Scripto was successful and profitable.• Competitors In the late 1963, Japanese entered the American writing market. And number of American soft-tip pen manufacturers increased.• After 1964, Scripto spent heavily to improve production facilities diversified its investments
•    6. • Resulted in sales increase by 40% in next two years.• In early 1972, Scripto introduced “19cer” fiber-tip pen, with the pricing strategy to sell a quality pen for considerably less than the competition.• All these show the management’s involvement in bust and boom performance of Scripto.







CASE  2:
Holden Electrical Supplies Company

Holden Electrical Supplies Company, Cincinnati, Ohio, manufactured a wide line of electrical equipment used in both home and industry. The sales force called on both electrical wholesalers and industrial buyers with the greater part of their efforts concentrated on industry buyers. The industrial products required considerable technical expertise upon the part of salespeople. Sales offices situated in twenty cities spread over the country had two hundred sales personnel operating out of them. In the past eight years sales volume increased by more than 50 percent, to a level of nearly $150,000,000. The fast rise in sales volume and the accompanying plant expansion created a problem in that more sales personnel were needed to keep up with the new accounts and to make sure the additional plant capacity was used profitably.
    In addition, Holden’s sales recruiting problem was compounded by a noticeable decline in the number of college seniors wanting a selling career. Holden recruiters had observed this at colleges and universities where they went searching for prospective salespeople. Another indication of the increased difficulty in attracting good young people into selling was aggressive recruiting by more and more companies. These factors combined to make the personnel recruiting problem serious for Holden; consequently, management ordered an evaluation of recruiting methods.
     Virtually all Holden salespeople were recruited from twenty-five engineering colleges by district sales managers. Typically, Holden recruiters screened two hundred college seniors to hire ten qualified sales engineers. It was estimated to cost Holden $600 to recruit a candidate. Management believed the college recruiting program was deficient in light of the high cost and the fact that only 5 percent of the candidates interviewed accepted employment with Holden.
    Evaluation of the college recruiting program began with the College Recruiting Division of the company asking district sales managers for their appraisals. Some district managers felt that Holden should discontinue college recruiting for various reasons, including the time required for recruiting, the intense competition, and the candidates’ lack of experience. Other district managers, however, felt the program should continue with a few modifications, such as recruiting college juniors for the summer employment more or less on a trial basis, concentrating on fewer schools, and getting on friendly terms with placement directors and professors.
    Holden’s general sales managers favored abandoning the college recruiting program and believed the company should adopt an active recruiting program utilizing other sources. He reasoned that, while engineering graduates had a fine technical background, their lack of maturity, inability to cope with business-type problems, and their lack of experience precluded an effective contribution to the Holden selling operation.
    The general sales managers felt that the two hundred sales engineers currently working for Holden were an excellent source of new recruits. They knew the requirements for selling the Holden line and were in continual contact with other salespeople. By enlisting the support of the sales force, the general manager foresaw an end to Holden’s difficulty in obtaining sales engineers.
    The president preferred internal recruiting from the nonselling divisions, such as engineering, design, and manufacturing. He claimed that their familiarity with Holden and their proven abilities were important indicators of potential success as sales engineers.
    A complete analysis of Holden’s entire personnel recruiting program was in order, and, regardless of the approach finally decided upon, it was paramount that the company have a continuous program to attract satisfactory people to the sales organization.



Case 2 Questions:

Evaluate Holden’s recruiting program, suggesting whether or not the company should have continued in college recruiting of sales engineers.


CASE 3: Marquette Frozen Foods Company
The Marquette Frozen Foods Company manufactured a wide line of frozen foods sold directly to all types of food stores. The company’s 100 salespeople worked out of thirty-five district sales offices located throughout the United States. Annual sales were nearly $50 million. Although the sales picture was quite favorable, certain recent developments indicated a possible need for redesign of sales territories.
    Sales territories were established using population as the base and were composed of one or more counties, depending on each county’s population. The aim was to assign each salesperson to a territory containing about 1 percent of the country’s total population. Since the total population was approximately 205 million (exclusive of Alaska and Hawaii), an attempt was made to assign each person a territory consisting of about 2,050,000 people. Population statistics were obtained from the U.S. Bureau of the Census and were modified according to local area statistics.
    The method of territory design was illustrated by the Northeast I sales territory, including Maine, New Hampshire, and part of Massachusetts. The Northeast I territory included the following Maine counties, along with their populations;  Aroostook, 95,000; Piscataquis,  16,000;  Penobscot,  125,000;  Androscoggin,  91,000;  Cumberland,  193,000;  Franklin,  22,000;  Hancock,  35,000;  Kennebec,  95,000; Knox,  29,000;  Lincoln,  21,000;  Oxford,  43,000;  Sagadahoc,  23,000;  Somerset, 41,000; Waldo, 23,000;  Washington, 30,000; and York, 112,000. Maine population: 994,000.
    The following New Hampshire counties and their population were included:  Belknap,  32,000;  Carroll,  19,000; Cheshire,  52,000; Coos,  34,000; Grafton,  55,000;  Hillsborough,  224,000; Merrimack,  81,000;  Rockingham,  139,000; Stratford,  70,000;  and Sullivan,  31,000. New Hampshire population: 737,000.
    Finally, the following Massachusetts towns were included to increase the sales territory population to the desired figure (the first six towns listed were in Essex County, while the last two were in Middlesex County); Amesbury, 13,000;  Newburyport,  18,000;  Haverhill,  46,000;  Lawrence, 67,000;  Salem,  41,000;  Marblehead, 21,000;  Tewksbury, 23,000; and Lowell,  95,000.  Massachusetts population: 321,000. Total population in Maine, New Hampshire, and parts of Essex and Middlesex counties in Massachusetts: 2,055,000.
    Analyses of population statistics were made every three years. When warranted by population changes, sales territories were redesigned: however, most changes were minor. The company supplied each salesperson with a detailed map showing the counties in his or her territory, the cities and towns, population, and the exact territorial assignments and to ensure a salesperson’s exclusive rights to a given territory.
    The Marquette sales manager had proposed and received acceptance of this method of determining sales territories several years ago. He favored this procedure because it guaranteed equal territories and similar sales opportunities for all company sales personnel and therefore eliminated an important cause for poor morale. With total population divided evenly, it was easy to compare relative performances of the sales force. Total population divided was an accurate estimate of potential demand, according to the sales manager, because everyone was a potential customer for frozen foods. In addition, he said that the simplicity and economy of this approach made it even more desirable.
    Careful analysis of a number of call reports, however, confirmed the sales manager’s suspicions that many  salespeople were “skimming the cream” or concentrating on the larger and easier-to-sell accounts, neglecting altogether a substantial number of prospects. Consequently, he concluded that territorial coverage was unsatisfactory. He believed that this situation could be remedied by reducing the size of the territories, permitting more intensive coverage.
    The sales managers was aware that there were many reasons why reduction of the size of sales territories was difficult to implement. First, the sales personnel would feel that something was being taken away from them; in some cases they would lose accounts they had cultivated over a long period. The result was a possible morale problem. Second, high costs were involved in redesigning sales territories. Third, there would be a need to hire additional salespeople to cover the new sales territories. Fourth, someone would have to convince the sales force that the changes were in the best interests of the sales staff, the company, and the customers. It would be essential to secure the sales force’s acceptance of the new plan.
    Since substantial problems were associated with reducing the sizes of the sales territories, the Marquette sales manager was still undecided whether to redesign the present sales territories.
Case 3 Questions: Evaluate Marquette’s method of designing the sales territories – strengths and weaknesses. Should the company reduce the size of its territories?

CASE 4:
Alderson Product, Inc.

Alderson Products Inc., a $15 million company, had recently become a wholly owned subsidiary of National Beverage Corp. of Baltimore, Maryland. National had purchased 100 percent of Alderson stock. The acquisition brought with it a number of problems common to such ventures, with the most pressing problems centering around the control of the sales effort.
    Alderson Products, Inc., produced and sold packaging equipment exclusively to the soft drink industry. The company, located in Detroit, was established in 1951 by the
Alderson brothers, Jim and Frank, both of whom had worked for General Motors for several years but who wanted to be in business for themselves. After a five-year search while they were still working at GM, they decided to enter the packaging equipment industry when an opportunity came up to buy out a small bottle capping machine producer. For the first year of operation, Alderson produced only a limited line of bottle capping machinery. However, gradually at first and then more rapidly, the Alderson product line was expanded to include capping machines, decapping machines, bottle lifters, case painters, case rebanding equipment, parts, lubricants, blenders, fillers, water-coolers, carbonators, saturators, packers, decasers, washers, water treatment systems, conveyors, rinser load tables, warmers, water chillers, and refrigeration units. Most of the equipment bearing the Alderson name was manufactured by the company itself. Some equipment was purchased from other makers: the cappers and decappers came from the Zalkin Corp. (France), the bottle washers from Firton Manufacturing (Pennsylvania), rinser and warmers from Southern Tool (Louisiana), water chillers from Dunham Bush (Georgia), and the refrigeration units came from Vilter Manufacturing Company (Wisconsin).
    The products offered by Alderson came in several different sizes to match the various different applications in the soft drink industry. In addition to the new products manufactured or purchased by Alderson, the company sold used equipment and machinery. The company got into used equipment after finding that a large number of its customers were too small to afford new equipment and could not perform extensive maintenance and repairs on their present equipment.
    The market for used equipment grew to the point where it contributed 30 percent of v Alderson’s net sales. Most of the used sales were from rebuilt machinery. Alderson bought the used machinery from bottlers, brought it to Detroit, reconditioned it, and sold it. Other used machinery was sold “as is.” This was machinery that was bought in acceptable operation conditions and required minor modifications or repairs. Usually, the “as is” machinery was transported top the buyer directly from its original location.
    The “rebuilt” phase of the business called for the customer to make a 25 percent of deposit on the order before the particular unit went through the shop. Once in the shop, the equipment was dismantled to its basic components and parts were added as required. The customer ended up with a “like new” machine or piece of equipment. Savings to the customers were typically about 30 percent with a new unit. Alderson’s rebuilt equipment carried a warranty. As an additional service, Alderson tried to maintain an adequate stock of spare parts for older units, even if the original manufacturer no longer made them available. There was some concern among management as to the future of the rebuilt equipment part of the business. About two years ago, the company began experiencing difficulty in acquiring used equipment that could be rebuilt. The supply of older units was dwindling, and competition for the used equipment was forcing prices up considerably. Alderson also found that more and more bottlers were reconditioning their own units. Although it constituted a profitable segment of the overall operation, there was some thought that it might be best for Alderson to get out of the used equipment business and concentrate on its growing business for new machinery and equipment.
    Alderson served only the soft drink industry, despite the suitability of the company’s products and services for other industries, such as the beer or fruit juice producers. No attempt had been made to branch out into the other markets, largely because the Alderson brothers felt they knew the soft drink industry best. The company served primarily local and regional bottlers; however, plans were underway to increase coverage to national and, possibly, international markets. Future expansion plans did not include markets outside the soft drink industry.
    Distribution of Alderson products was through two company salespersons and six manufacturers’ representatives. Both salespersons were paid straight salaries. One salesperson spent about one-fourth of his time appraising and procuring used equipment. The other salesperson spent about one quarter of his time piloting the company airplane. The representatives received a commission for their services, according to the following schedule: 5 percent for the first $50,000, 2.5 percent for the next $50,000 (up to $100,000) and 1 percent for anything over $100,000. This was bases on individual sales. The representatives received a sales commission on any sale in their territory, regardless of whether the company (Alderson) or the representative closed the sale.
    In addition to using the personal selling, Alderson promoted its products through advertising, trade conventions, and direct mail. Alderson advertised in six trade publications, averaging one insertion every two months in each of the journals. The direct mail consisted of a newsletter, “Alderson’s News,” mailed to current and potential customers.
    With the takeover complete, National sent its auditors to Alderson Products for a routine evaluation. Among other things, it soon became apparent that Alderson had been very lax in its sales control efforts. In particular, there was no evidence that a sales budget was used and there had been no attempt at a sales analysis. The sales manager, who had been in his position for two years after four years as a salesperson with Alderson, said there had been no sales budgeting or sales analysis effort for three years prior to his becoming sales manager. He did mention that a sales budget was used for a time before that, but he was unaware of its details. When questioned by the National auditor as to why he had not instituted sales control procedures, the sales manager said he had discussed it with Frank Alderson and they came to the conclusion that the company was moving along very well and there really was no need for tight control. He was, though, on the alert that, should sales results taper off, it might be necessary to have some controls at a future date. The sales manager also pointed out that he was so busy working on a personal basis with the company sales personnel and the sales representatives that he just didn’t have the time for budgets, quotas, sales analysis and “things like that.”



Case 4 Questions:

Was there a need for sales control at Alderson Products, Inc.? Why or why not?
What would have been the components of a good sales control program for Alderson products? Be specific and give your reasons for each element of sales control.

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Attempt Any Four Case Studies

Case I
THE STRATEGIC ASPIRATIONS OF THE RESERVE BANK OF INDIA

The Reserve Bank of India (RBI) is India's central bank or 'the bank of the bankers'. It was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the RBI, initially set up at Kolkata, is at Mumbai. The RBI is fully owned by the Government of India.
    The history of the RBI is closely aligned with the economic and financial history of India. Most cen¬tral banks around the world were established around the beginning of the twentieth century. The Bank was established on the basis of the Hilton Young Commission. It began its operations by tak¬ing over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. After inde¬pendence, RBI gradually strengthened its institu¬tion-building capabilities and evolved in terms of functions from central banking to that of develop¬ment. There have been several attempts at reor-ganisation, restructuring and creation of specialised institutions to cater to emerging needs.

    The Preamble of the RBI describes its basic functions like this: '...to regulate the issue of Bank Notes and keeping of reserves with a view to secur¬ing monetary stability in India and generally to op-erate the currency and credit system of the country to its advantage.' The vision states that the RBI '...aims to be a leading central bank with credible, transparent, proactive and contemporaneous poli-cies and seeks to be a catalyst for the emergence of a globally competitive financial system that helps deliver a high quality of life to the people in the country.' The mission states that 'RBI seeks to de¬velop a sound and efficient financial system with monetary stability conducive to balanced and sus-tained growth of the Indian economy'. The corporate values underlining the mission statement include public interest, integrity, excellence, independence of views and responsiveness and dynamism.

    The three areas in which objectives of the RBI can be stated are as below.
1.    Monetary policy objectives such as containing inflation and promoting economic growth, management of foreign exchange reserves and making currency available.
2.    Objectives set for managing financial sector developments such as supervision of systems and information access and assisting banking and financial institutions to become competitive globally.
3.    Organisational development objectives such as development of economic research facilities, creating information system for supporting economic decision-making, financial management and human resource management.

Strategic actions taken to realise the objectives fall under four categories:
1.    The thrust area of monetary policy formulation and managing financial sector;
2.    Evolving the legal framework to support the thrust area;
2.    Customer services for providing support and creation of positive relationship; and
3.    Organisational support such as structure, systems, human resource development and adoption of modern technology.
The major functions performed by the RBI are:
•    Acting as the monetary authority
•    Acting as the regulator and supervisor of the financial system
•    Discharging responsibilities as the manager of foreign exchange
•    Issue currency
•    Play a developmental role
•    Related functions such as acting as the banker to the government and     scheduled banks

The management of the RBI is the responsibility of the central board of directors headed by the governor and consisting of deputy governors and other directors, all of whom are appointed by the government. There are four local boards based at Chennai, Kolkata, Mumbai and New Delhi. The day-to-day management of RBI is in the hands of the executive directors, managers at various levels and the support staff. There are about 22000 employees at RBI, working in 25 departments and training colleges.

    The RBI identified its strengths and weaknesses as under.
•     Strengths A large body of competent offers and staff; access to key data on the economy; wide organisational network with 22 regional offices; established infrastructure; ability to attract talent; and financial self sufficiency.
•     Weaknesses Structural rigidity, lack of accountability and slow decision-making; eroded specialist know-how; strong employee unions with rigid     industrial relations stance; surplus staff; and weak market intelligence.

Over the years, the RBI has evolved in terms of structure and functions, in response to the role as signed to it. There have been sweeping changes in the economic, social and political environment. The RBI has had to respond to it even in the absence of a systematic strategic plan. In 1992, the RBI, with the assistance of a private consultancy firm, embarked on a massive strategic planning exercise. The objective was to establish a roadmap to redefine RBI's role and to review internal organisational and managerial efficacy, address the changing expectations from external stakeholders and reposition the bank in the global context. The strategic planning exercise was buttressed by departmental position papers and documents on various subjects such as technology, human resources and environmental trends. The strategic plan of the RBI emerged with four sections dealing with the statement of mission, objectives and policy, a review of RBI's strengths and weaknesses and strategic actions required with an implementation plan. The strategic plan reiterates anticipation of evolving external environment in the medium-term; revisiting strengths and weaknesses (evaluation of capabilities); and doing away with the outdated mandates for enhancing efficiency in operations in furtherance of best public interests. The results of these efforts are likely to manifest in attaining a visible focus, reinforced proficiency, realisation of shared sense of purpose, optimising resource use and build-up of momentum to achieve goals.

    Historically, the RBI adopted the time-tested technique of responding to external environment in a pragmatic manner and making piecemeal changes. The dilemma in adoption of a comprehensive strategic plan was the risk of trading off the flexibility of the pragmatic approach to creating rigidity imposed by a set model of planning.

Questions
1.    Consider the vision and mission statements of the Reserve Bank of India.     Comment on the quality of both these statements.

2.    Should the RBI go for a systematic and comprehensive strategic plan in place of its earlier pragmatic approach of responding to environmental events as and when they occur? Why?


Case II
WHAT LIES IN STORE FOR THE RETAILING INDUSTRY IN INDIA?*

India is not known as the 'nation of shopkeepers', yet it has as many as 5 million retail outlets of all shapes and sizes. Some other optimistic estimates "place the number at as high as 12 million. Whatever be the number, India can claim to have the highest number of retail outlets per capita in the world. But almost all of these are small outfits occupying an average of 500 square feet in size, managed by family members, having negligible investment in land and assets, paying little or no tax and known as the kirana dukaan ('mom and pop' stores in the U.S or the corner grocery stores in the U.K.). These outlets offer mainly food items and groceries—the staple of retailing in India. Customer contact is personal and one-on-one, often running through generations. There are a limited number of items offered! often sold on credit—the payment to be collected at the end of the month. The quality of items standard, with moderate pricing.
    There is great hype about the growth and prospects of organised retailing industry in India. It must be noted, however, that organised retailing constitutes barely 2 per cent of the total retailing industry in India, the rest 98 percent being under the control of the unorganised, informal sector of' kirana dukaans. Market research agencies and consultants come up with encouraging forecasts about this segment of the retailing industry. For instance, AT. Kearney's Global Retail Development Index ranks 30 emerging countries on a 100- point scale. Its 2007-ranking places India at number one for the third consecutive year, with 92 points, fol¬lowed by Russia and China. The size of the organised retailing industry is estimated at US $8 billion and projected to grow at a compound annual growth rate of 40 per cent to US $22 billion by 2010. Overall, the Indian retailing industry is expected to grow from the current US $350 billion to US $427 billion by 2010 and US $635 billion by 2015.
   
The economic environment in the post-liberalisation period after 1991, has created several factors that have made this high growth of the organised retailing industry possible. India's impressive economic growth rate of 9 per cent is the prime driver of increasing disposable incomes in the hands of the consumer. The growing size of the consuming class in India, in tandem with the entry and expansion of the organised sector players in recent years, has set the pace for corporate investment in retail business. Practically, every major Indian business group is looking for opportunities in the growing retailing industry. Among them are the big names in the Indian corporate sector such as the AV Birla group, Bharti, Godrej, ITC group, Mahindras, Reliance, Tatas and the Wadia group.
The international environment presently is replete with examples of the fast-paced growth of the retailing industry in many developing countries around the world. In the post-liberalisation period, there is more openness and awareness of the international developments among Indians. The ease of travel abroad and the exposure through television and Internet have increase the awareness of the urban Indian consumer to the convenience of modern shopping. The modern retail formats thus have gained acceptance in India. Carrefour, Tesco and Wal-Mart are the international players already operating in India, with several others like Euroset, Supervalue and Starbucks having plans to enter soon. These international companies bring to India the latest developments in the retailing industry and help to set up a benchmark for the domestic player.

    The market environment is one of the most significant in terms of the growth and prospects of the retailing industry in India. In terms of geography, the reach of the organised retailing industry has been growing. In addition to the mega-cities of Mumbai and Delhi, cities such as Bangalore, Pune, Hyderabad, Kolkata and Chennai are also witnessing a boom in organised retail activity. Retailers are now trying to focus on smaller cities such as Nagpur, Indore, Chandigarh, Lucknow or Cochin. There are interesting possibilities regarding the re¬tail formats. Traditionally, street carts, pavement shops, kirana stores, public distribution systems, kiosks, weekly markets and such other formats unique to India, have been in existence for a long time. At present, most organised retail formers are imitations of those used abroad. These include hyper and supermarkets, convenience store, department stores and specialty chains. Among these formats, a notable trend has been the development of integrated retail-cum-entertainment centres and malls as opposed to stand-alone developments. Besides these, there are some attempts at indigenous formats aimed at the rural markets-such as those by ITC's Choupal Sagar, DSCL's Hairyali Kisaan Bazaar and Godrej group's Godrej Aadhar. Pricing is an important issue in the retailing industry. Generally, the bulk buying yield lower costs of procurement for the big retailers—a part of which they pass on to the customer in the form of lower prices. In food retailing, for instance, there is a clear trend of low prices being the determining factor in purchase decisions by the cost-conscious Indian consumer. But, lower prices may not be a major issue with the higher-income groups that may place greater emphasis on the quality of products and retail service, store ambience and convenience of shopping. For the majority of Indian consumers however, price is likely to remain a significantly important issue in the purchase decision. Competition has already accelerated with many Indian business groups having entered or likely to enter this booming industry.
The political environment in India is ambiguous! in terms of its support to the organised retailing industry. This is obvious as the unorganised sector employs nearly 8per cent of the Indian population and is widely spread geographically. The whelming presence in terms of 98 per cent of the total retailing industry also is a significant political issue. In a democracy, the politics of numbers makes it imperative for the political class to adopt an ambiguous stand. In some cases, politicians have acted in favour of the unorganised sector by disallowing the setting up of large retail some states. Overall, however, there is ambiguity as there are several environmental trends in favor of the development of the organised retailing industry.
    In the regulatory environment, there has gradual easing of the restrictions albeit at a slow pace, in view of the ambiguous political stance as indicated above. Interestingly, the retailing industry, is still not recognised as an industry in India, Foreign direct investment of up to 100 per cent is not permitted though it is possible for foreign players to enter through the routes of agreements, cash-and-carry wholesale trading and strategic licensing agreements. Another problem area is of the real estate laws at the level of state governments that are yet to be clear on the issue of allowing large stores. Restructuring of the tax structure for the retailing industry is another regulatory issue requiring governmental action. However, tariffs on imported consumer items have been gradually aligned to meet the prescribed WTO norms and reduction of import restrictions are likely to help the growing organised retailing industry.
    The socio-cultural environment offers many interesting insights into the changing tastes and references of the urban and semi-urban Indian consumer. There is a large rural market consisting of nearly 720 million consumers, spread over more 600,000 villages. India's consumers are young: 70 percent of the country's citizens are low the age of 36 and half of those are under 18 years of age. These people have deep roots in the local culture and traditions, yet are eager to get connected with and know the outside world. According to a DSP Merrill Lynch report, the key factor providing a thrust to the retail boom in India the changing age profile of spenders. A group of seven million young Indians in their mid-twenties, learning over US$ 5000 per year, is emerging every year. This group constitutes people who are enthusiastic spenders and like to visit the new format retail outlets for the convenience and time saving they offer. Malls are also being perceived as just places for shopping, but for spending leisure time and as meeting places. There has been an emergence of a combination of the retail outlet and entertainment centres having multiplexes, with food courts and video game parlours.
    But there are some pitfalls too. For instance, organised retailing in India has had to deal with the misconception among middle-class consumers that the modern retail formats being air conditioned, sophisticated places are bound to be more expensive.
    The supplier environment probably offers the biggest constraint on the growth of the retailing industry in India. Reaching India's consumers cost effectively is a distribution nightmare, owing to the sheer geographical size of the country and the presence of traditional, fragmented distribution and retailing networks and erratic logistics. For instance, the apparel segment that is one of the two top segments, the other being food, have had to invest in back-end processes to support supply chains. Supply chain management and merchandising practices are increasingly converging and apparel retailers are establishing collaborations with their vendors. Another area of concern is the severe shortage of skills in retailing. Human resource development for the retailing industry has picked up lately but may take time to fill the gap caused due to the shortage of personnel.
    The technological environment for the organised retailing industry straddles many areas such as IT support to supply chain management, logistics, transportation and store operations. Some global retailers have demonstrated that an innovative use of technology can provide a substantial strategic advantage. The large number of store items, the diversity of sourcing and the gigantic effort required to coordinate actions in a large retail context is ideal for using IT as a support function. For instance, an innovative use of IT can help in a wide variety of functions such as quick information processing and timely decision-making, reduction in processing costs, real-time monitoring and control of opera¬tions, security of transactions and operations inte¬gration. The availability of supply chain management, customer relationship management an merchandising software can help much while performing activities such as ordering and tracking inventory items, warehousing, transportation and customer profiling.
    Overall, the Indian scenario offers an interesting mix of possibilities and challenges. A successful model of large-scale retailing appropriate for the Indian context is yet to emerge. The modern retail formats accepted globally are in the process of implementation and their acceptability is yet to be established.

Questions:

1.    Identify the opportunities and threats that the retailing industry in India offers to local and foreign companies.
2.    Prepare an ETOP for a company interested in entering the retailing industry in India.


Case III
HELPAGE INDIA
   
The developments in medical sciences—the lowering of mortality rates and the increase in life expectancy—have ironically led to a situation where there are increasingly, a larger number of aged people in the society. The situation in most countries of the world is that the number of ageing people is increasing. India too, like other developing countries, experiences a rapid ageing of the population, with estimated 80 million aged people. Almost eight out of ten of these aged people live in rural areas.

    The challenges that the elderly people in society face are many. For instance, a report in the Indian context indicates the following challenges:
?    90% of senior citizens receive no social se¬curity or medical care.
?    73% of senior citizens are illiterate and can only earn a livelihood through physical labour, which is possible only if they are healthy in their old age.
?    80% of senior citizens live in rural areas with inadequate or inaccessible medical facilities; many are unable to access the medical facilities because of reduced mobility in the old age.
?    55% of women over the age of 60 are widows with no means of support

The elderly people, or senior citizens, are the fastest growing segment of the Indian society. By 2025, the population of the elderly is expected to reach 177 million.

    Unlike many developed countries, India does not have an effective security net for the elderly people. There have been sporadic attempts by governments at the central and state levels to pay old age pensions, but like most government schemes, there is a lot of leakage of funds and inefficiency. There is also a lack of post-retirement avenues for re-employment.
    Socio-economic developments such as urbanization modernisation and globalisation have impacted the economic structure and led to an erosion of societal values and the weakening of social institutions such as the joint family. The changing mores of society have created a chasm between generations. The intergenerational differences have created a situation where the younger people are involved in education, career building and establishing themselves in life, ending up ignoring the needs of the elderly among them. The older generation is caught between a society which cares little for them and the absence of social security, leading them to a situation where they are left to fend for themselves. It is in this context that institutions such as HelpAge India play a positive role in society.

    HelpAge India, established in 1978, is a secular, not-for-profit, non-governmental organisation, registered under the Societies Registration Act of 1860. Its mission is stated as 'to work for the cause and care of the disadvantaged older persons and to improve their quality of life'. The three core values that guide HelpAge India's work are rights, relief and resources. HelpAge India is one of the founder members of HelpAge International, a body of 51 nations representing the cause of the elderly at the United Nations. It is also a member of the International Federation on Ageing.
    The organisation of HelpAge India consists of a head office at New Delhi, with four regional and thirty-three area offices situated all over India. The governing body of the organisation consists of ten distinguished people from different walks of life. Besides the governing body, there are three committees: the operations committee, the business development committee, and the audit committee. The CEO, Mr Mathew Cherian oversees the planning and implementation of policies and programmes, with the support of five electors. The regional directors are responsible for their own regions. The program division at the head office chooses the partner agencies to provide the services to the elderly people.

HelpAge India raises resources to perform three types of functions:
?    Advocacy about policies for the elderly persons with the national and local governments
?    Creating awareness in society about the concerns of the aged and promote better understanding of ageing issues
?    Help the elderly persons become aware of their own rights so that they get their due and are able to play an active role in society

The major programmes undertaken by HelpAge India include mobile medicare units, ophthalmic care for performing cataract surgeries, Adopt-a-Gran, support to old-age homes, day care centres, income generation and disaster relief.

    The business model of HelpAge India is based on revenue generation through grants and donations from international and national source. Nearly half of the donations come from international donors. About a fifth of the donors are individuals. The sources of contributions come from fundraising activities that include direct mail, school fundraising corporate fundraising, sale of greeting cards, acting as corporate agent for insurance, organizing event and establishing a shop-for-a-cause that sells gift made by disadvantaged people. A review report on the activities of HelpAge India enumerates its strong points as below:
?    Wide Reach and Impact HelpAge India has been able to impact the lives of a large number of elderly people and their families by adopting a holistic approach that provide immediate relief as well as long-tern sustainable improvement.
?    Effective Partnerships in Development HelpAge India has evolved as a development support agency through creating partner agencies, that is funded to implement the projects.
?    High Degree of Charitable Commitment Typically non-profit organisations spend a loft; on overhead and administrative costs. But3 HelpAge India is able to put nearly eighty-five, per cent of the funds towards actual project implementation.   
?    Focus on Efficiency and Transparency The partner agencies are chosen carefully and monitored thoroughly. This results in increased efficiency and low overheads. Project implementation through partnerships increases efficiency and cuts down on 3overhead costs.
?    Quality of Management The management; quality of HelpAge India is good and there are a lot of committed people. New employees are also trained to be sensitive to the mission of the organisation.

    With a wide spread of activities and being a non-governmental organisation having limited funding, HelpAge India has adopted modern means of information technology and networking. Most of the HelpAge executives work in the field and have no direct access to the office network. They have to use e-mail in order to maintain contact with their regional or area offices. They use cyber-cafes or handheld devices for sending and receiving e-mails. HelpAge has installed a secure connection at an initial cost of Rs. 4 lakh and annual upgradation cost of Rs. 75,000 to access e-mail from anywhere, with a high level of security and protection of data and contents.

    The nature of non-profit organisations demands certain requirements. Among these, transparency of operations and funds management is a major one. There are many NGOs that are accused or suspected of misappropriating funds for personal benefit. HelpAge India is conscious of this fact and gives high priority to information disclosure. The audited financial statements and the annual report are available on its website. The financial statements give a detailed account of the expenditure on individual projects. The expenses on travel and salaries of its employees and CEO are also mentioned. The individual donors are provided information regarding the use of the funds donated by them.

    The functional approach at HelpAge India consists of developing projects based on the assessment of the needs of its target community rather than on implementing them directly. The implementation takes place through the partner agencies. Rather than outright grants, it supports income generation projects for the elderly people. The success of implementation critically depends on the identification and appointment of partner agencies. The officers of HelpAge India physically inspect the proposed agencies and check on their management to ensure that they are not family-run set-ups established for personal gains. HelpAge India works presently, with nearly 400 partner agencies. These include, for instance, about 150 charitable eye hospitals that act as partner agencies for the ophthalmic care programme.

    HelpAge India with its slogan of 'fighting isolation, poverty and neglect' moves on its mission of providing 'equal rights, dignity for elders'. It foresees its future activities in the area of rights based advocacy for a better life for the elderly people by bringing them into the mainstream of society rather than being marginalised to the fringes.

Questions
1. In your opinion, what is the distinctive competence of HelpAge India?
2. Prepare a strategic advantage profile for HelpAge India.



Case IV
BHARAT HEAVY ELECTRICALS LIMITED CONCENTRATES ON THE EQUIPMENT INDUSTRY

Bharat Heavy Electricals Limited (BHEL) is India's largest engineering and manufacturing enterprise, operating in the energy sector, employing more than 42000 people. Established in 1956, it has established its presence in the heavy electrical equipments industry nationally as well as globally. BHEL is one of the navaratnas (lit. nine gems) among the public sector enterprises in India. Its vision is to be 'a world class enterprise committed to enhancing stakeholder value'. Its mission statement is: 'to be an Indian multinational engineering enterprise providing total business solutions through quality products, systems, and services in the fields of energy, industry, transportation, infrastructure, and other potential areas'.

    BHEL is a huge organisation, manufacturing over 180 products categorised into 30 major product groups, catering to the core sectors of power generation and transmission, industry, transportation, telecommunications and renewable energy. It has 14 manufacturing divisions, four power sector regional centres, over 100 project sites, eight service centres and 18 regional offices. It acquires technology from abroad and develops its own technology at its research and development centres. The operations of BHEL are organised into three business sectors of power, industry and overseas business. Besides the business sector departments, there are the corporate functional departments of engineering and R&D, human resource development, finance and corporate planning and development.
    BHEL's turnover hit an all-time high of Rs. 18,739 crore, registering a growth of 29 per cent, while net profit increased by 44 per cent to touch Rs. 2,415 crore in 2006-07. The company has a comfortable order book position of Rs. 55,000 crore for 2007-8 and beyond. The company booked ex¬port orders worth Rs. 1,903 crore in 2006-07. It is looking toward to US$10 billion exports by 2012 from the present US$ 4 billion. The capital investment plan of BHEL for the 11th National Plan period envisages an investment of Rs 3,200 crore, mainly to enhance its manufacturing capacity from 10000 MW to 15000 MW.

    BHEL has formulated a five-year strategic plan with the aim of achieving a sustainable profitable growth, targeting at a turnover of Rs. 45,000 crore by 2012. The strategy is driven by a combination of organic and inorganic growth. Organic growth is planned through capacity and capability enhancement, designed to leverage the company's core are s of power, supported by the industry, transmission, exports and spares and services businesses. For the purpose of inorganic growth, BHEL plans to pursue mergers and acquisition and joint ventures and grow operations both in domestic and export markets.

    BHEL is involved in several strategic business initiatives at present for internationalisation. These include targeting the export markets, positioning itself as a reputed engineering, procurement and construction (EPC) contractor globally, and looking for opportunities for overseas joint ventures.

    An example of a concentration strategy of BHEL in the power sector is the joint venture with another public Enterprise, National Thermal Power Corporation, to perform EPC activities in the power sector. It is to be noted that NTPC as a power generation utility and BHEL as an EPC contractor have worked together on several domestic projects earlier, but without a forma partnership. BHEL also has join1 ventures with GE of the US and Siemens AG of Germany. Other strategic initiatives include management contract for Bharat Pumps and Compressors Ltd. and a proposed takeover of Bharat Heavy Plates and Vessels, both being sister publics enterprises.

    Despite its impressive performance, BHEL is unable to fulfil the requirements for power equipment in the country. The demand for power has been exceeding the growth and availability. There are serious concerns about energy shortages owing to inadequate generation and transmission, as well as inefficiencies in the power sector. Since this sector is a major part of the national infrastructure, problems in the fibwer sector affect the overall economic growth the country as well as its attractiveness as a destination for foreign investments. BHEL also faces stiff competition from international players in the power equipment sector, mainly of Korean; and Chinese origin. There seems to be an undercurrent of conflict between the two governmental ministries of power and heavy industries. BHEL operates administratively under the Ministry of Heavy Industries, but supplies mainly to the power sector that is under the Ministry of Power. There has been talk of establishing another power equipment company as a part of the NTPC for some time, with the purpose of lessening the burden on BHEL.

Questions
1.    BHEL is mainly formulating and implementing concentration strategies nationally as well as globally, in the power equipment sector. Do you think it should broaden the scope of its strategies to include integration or diversification? Why?
2.    Suppose BHEL plans to diversify its business. What areas should it diversify into? Give reasons to justify your choice.


Case V

THE INTERNATIONALISATION OF KALYANI GROUP

    The Kalyani Group is a large family-business group of India, employing more than 10000 employees. It has diverse businesses in engineering, steel, forgings, auto components, non-conventional energy and specialty chemicals. The annual turnover) of the Group is over US$ 2.1 billion. The Group is known for its impressive internationalisation achievements. It has nine manufacturing locations ad over six countries. Over the years, it has established joint ventures with many global companies such as ArvinMeritor, USA, Carpenter Technology Corporation, USA, Hayes Lemmerz, USA and FAW Corporation, China.

    The flagship company of the Group is Bharat Forge Limited that is claimed to be the second largest forging company in the world and the largest nationally, with about 80 per cent share in axle and engine components. The other major companies of the Group are Kalyani Steels, Kalyani Carpenter Special Steels, Kalyani Lemmerz, Automotive Axles Kalyani Thermal Systems, BF Utilities, Hikal Limited, Epicenter and Synise Technologies.

    The emphasis on internationalisation is reflected in the vision statement of the Group where two of the five points relate to the Group trying to be world-class organisation and achieving growth aggressively by accessing global markets. The Group is led by Mr. B.N. Kalyani, who is considered to be the major force behind the Group's aggres¬sive internationalisation drive. Mr. Kalyani joined the Group in 1972 when it was a small-scale diesel engine component business.

    The corporate strategy of the Group is a combination of concentration on its core competence in its businesses with efforts at building, nurturing and sustaining mutually beneficial partnerships with alliance partners and customers. The value of these partnerships essentially lies in collaborative product development with the partners who are the original equipment manufacturers. The foreign partners are not intended to provide expansion in capacity, but enable the Kalyani Group to extend its global marketing reach.

    In achieving its successful status, the Kalyani Group has followed the path of integration, extending from the upstream steel making to downstream machining for auto components such as crankshafts, front axle beams, steering knuckles, camshafts, connecting rods and rocker arms. In all these products, the Group has tried to move up the value chain instead of providing just the raw forgings. In the 1990s, it undertook a restructuring exercise to trim its unrelated businesses such as television and video products and concentrate on its core business of auto components
    Four factors are supposed to have influenced the growth of the Group over the years. These are mentioned below:
    •    Focussing on crore businesses to maximize growth potential
    •     Attaining aggressive cost savings
    •    Expanding geographically to build global capacity and establishing leading positions
    •    Achieving external growth through acquisitions

    The Group companies are claimed to be positioned at either number one or two in their respective businesses. For instance, the Group claims to be number one in forging and machined components, axle aggregates, wheels and alloy steel. The technology used by the Group in its mainline business of auto components and other businesses, is claimed to be state-of-the-art. The Group invests in forging technology to enhance efficiency, production quality and design capabilities. The Group's emphasis on technology can be gauged from the fact that in the 1990s, it took the risky decision of investing Rs. 100 crore in the then latest forging technology, when the total Group turnover was barely Rs. 230 crore. Information technology is applied for product development, reducing 3 production and product development time, supply-chain management and marketing of products. The Group lays high emphasis on research and development for providing engineering support, advanced metallurgical analysis and latest testing equipment in tandem with its high-class manufacturing facilities.

    Being a top-driven group, the pattern of strategic decision-making within seems to be entrepreneurial. There was an attempt to formulate a five-year strategic plan in 1997, with the participation of the company executives. But not much is mentioned in the business press about that collaborative strategic decision-making after that.

    Recent strategic moves include Kalyani Steels, a Group company, entering into a joint venture agreement in May 2007, with Gerdau S.A. Brazil for installation of rolling mills. An attempt to move out of the mainstream forging business was made when the Group strengthened its position in the prospective business of wind energy through 100 percent acquisition of RSB consult GmbH (RSB) of Germany. Prior to the acquisition, the Group was just a wind farm, operator and supplier of components.

Questions
1.    What is the motive for internationalization by the Kalyani Group? Discuss.

2.    Which type of international strategy is Kalyani Group adopting?         Explain.

Case VI
CORPORATE RESTRUCTURING OF THE INDIAN REAILWAYS

On 16 April 1853, a locomotive pulling 14 carriages and 400 people left what was then Bombay, to a 21-gun salute, and shuttled to Thane, 34 km away. The journey took about 75 minutes. That was the way Indian Railways was born. Some estimates consider the Indian Railways as the world's largest commercial enterprise in terms of the number of employees.

    Indian Railways is a departmental undertaking of the Government of India. The Central Ministry of Railways oversees the policy making for the Indian Railways and is headed by a union minister. There are some ministers of state holding specific responsibilities. The administration of Indian Railways is done through the Railway Board headed by a chairman and having six members.

    There are 16 railway zones, each headed by a General Manager who reports to the Railway Board. The zones are divided into divisions under the control of divisional railway managers. There are 44 functional departments, including those of engineering, mechanical, electrical, signal and telecommunications, accounts, personnel and operating, commercial and safety branches. At the operational levels, there are station superintendents and station masters who control individual railway stations. Apart from the Indian Railways, the Ministry also has a number of public sector enterprises under its administrative control. There is an autonomous organization called the Centre for Railway information System, dedicated to developing specialized application software for the railways.

    The financial matters of the Indian Railways are dealt with through an elaborate system involving the parliament of India down to the accounts departments at the divisional headquarters. The Railway budget is presented every year and passed by both houses of the parliament. The budget is based on the expected traffic and the projected tariff and capital and revenue expenditure. Dividends are paid to the Central government on the capital invested. Indian Railways is subjected to the same audit control as other government ministries and departments.

    The Indian Railways is Asia's largest and the world's second largest rail network under a single management. It is a multi-gauge, multi-traction system covering over 60,000 route kilometers, with 300 railways yards and 700 repair shops and covers most of the country's vast geographical spread. The rolling stock fleet of the Indian Railways comprises 7,566 locomotives, 37,840 coaches and 222 million freight wagons. With a workforce of around 1.4 million, it runs more than 11,000 trains daily.

The Indian Railways has evolved into a vertically integrated organization. Various units are engaged in designing, manufacturing and maintaining the rolling stock, running institutions such as hospitals, schools, housing estates and hotels and catering. It issues licenses to a large number of uniformed porters and authorized hawkers. These are only some of the major activities that the Indian Railways perform.
There are many problems facing the Indian Railways. Among these, the major ones are:
•    Cross-subsidisation of passenger and freight tariff
•    High energy and fuel costs
•    High accident rate
•    Antiquated communication, safety and signaling equipment.
•    Ageing infrastructure including rail tracks and bridges.
•    High establishment and personnel costs.
•    Emerging competition from low-cost airlines.

Many areas of the Indian Railways are in need of improvement. Several actions have been taken over the years that include:
•    Upgrading technology, especially the application of IT
•    Improving the quality of railway services
•    Production of better quality locomotives and
•    Introduction of fast long-distance trains
•    Addition of value-added services such as introducing banking facilities on trains.

    A Status Paper on the Indian Railways was issued May 1998, followed by another in 2002. These status papers underlined issues confronting the Indian Railways and possible options. The Status Paper-1998, for instance, focused on the strategies related to honing the marketing capability for bulk and non-bulk freight and passenger services, reducing operating costs, evolving a financial strategy, bringing about cultural change and addressed issues of concern in areas such as research and development and IT. Similarly, the status paper of 2002 presented several issues and posed several questions related to its functioning.

    A report published in 2001 by a government appointed group chaired by Rakesh Mohan, now the deputy governor of Reserve Bank of India, called for a radical restructuring of the Indian Railways. The main thrust of its recommendations was on shedding the non-core activities such as catering and manufacturing not related to its main activities of passenger and freight transportation and becoming a focussed organisation.

    Freight has been the key revenue earner for Indian Railways. The target for 2007-08 is at 785 million tonnes. The market share of freight traffic had been on the decline over the last few decades, owing to improvements in road infrastructure. To arrest this decline, it became imperative to: enhance customer responsiveness through cargo visibility and information dissemination, reduce operating expenses and improve asset utilisation. In order to achieve these aims, the Indian Railways installed a computerised Freight Operations Information System, with the assistance of CMC Limited.

    There is much hype around the financial turnaround of the Indian Railways. Here, the major achievements have been in the areas of improved freight and passenger earnings, gross traffic revenue, higher cash surplus, higher net revenue, better operating ratio and return on capital. For instance, the Indian Railways is proud of its achievements in terms of an above 78 per cent operating ratio and a 20 per cent return on capital in 2006- 2007.

    Overall, the Indian Railways have benefited from several managerial initiatives taken over the recent past, such as corporatisation of many of its activities and hiving off, separate companies to perform functions performed in-house earlier. For example, the Indian Railways Catering and Tourism Corporation took over the non-core activities of catering while Rail Tel Corporation was formed to create the optic fibre network for communications. Another subtle manner of change seems to be the creeping nature of privatisation of non-core services and adoption of modern business methods of marketing and human resource management to improve operational efficiency. These seem to be working though critics say that the increase in the general economic activity and overloading of wagons is the cause of this improved short-term performance.

    Certain inherent issues have become a part of the Indian Railways heritage. Among these are: overdependence on freight business, much of freight business arising from a select few commodities, passenger traffic being concentrated in low-yield suburban traffic and high density of traffic in the certain areas coupled with under-utilised assets and facilities in others. The fundamental issues of the dilemma whether Indian Railways is an organisation in the nature of a public utility, designed to discharge social obligations, or is it a commercial orgarnisation for which financial performance and operational efficiency are imperative still remain.

Questions
1.    Comment on the steps taken to reduce the extent of vertical integration at the Indian Railways. Suggest a few more measures that could be taken.

2.    Discuss the measures taken for corporate restructuring of the Indian Railways, in your opinion, are these adequate for dealing with the problems faced? Why?

3.    Propose the basic elements of a corporate turnaround for the Indian Railways.

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Q 1 : Describe Open & Close Store Systems ? When can it be employed?

Q.2 : How does ERP resolve Typical Problems faced by organizations wanting to automate materials management? Describe different reports generated under ERP for use by different functions.

Q.3 : Describe ABC analysis. How is it used to control inventory. What are different stock levels determined to control inventory? How are they calculated?

Q.4 : If proper stores Ledgers are maintained for each material, Bin Cards are not required for stores control. Do you agree? Why?

Q.5 : What measures are required to prevent thefts by outsiders? Would you recommend use of stores manual to train stores employees in safety & security? Why?

Q.6 : Damage to materials can be avoided by proper segregation of materials in the stores. Explain.

Q.7 : What are the requirements for handling, storing and packing materials as issued by international  organization for standards under ISO 9000?

Q.8 : Who should manage the scale of scrap? Sales manager or purchase manager? Why?

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CASE 1 Rainforest Café: A Wild Place to Shop and Eat

Steve Schussler the first Rainforest Café in the Mall of America, the largest enclosed mall in the worlds, in 1994. Before opening this unique retail store and theme restaurant, Schussler tested the concept for 12 years, eventually building a prototype in his Minneapolis home. It was not easy sharing a house with parrots, butterflies, tortoises, and tropical fish, but Schussler’s creativity resulted in a highly profitable and fast-growing chain.
    In 1996, the Rainforest Cafés (….
, Landry’s closed a number of Rainforest’s mall locations but opened up new locations in London’s Piccadilly Circus, Euro Disney outside Paris, Niagara Falls, the MGM Grand Hotel and Casino in Las Vegas, and Fisherman’s Wharf in San Francisco.

DISCUSSION QUESTIONS

1.    What is Rainforest Café’s retail offering and target market?
2.    Were malls good locations for Rainforest Cafés? Why or why not? What would be the best location types?
3.    Many retailers have tried to make their stores more entertaining. In a number of cases, these efforts have failed. What are the pros and cons of providing a lot of entertainment in a retail store or restaurant?



CASE 2 Providing a Retail Experience: Build-A-Bear Workshop

Today’s consumers want good value, low prices, and convenience, but they also are attracted to a great shopping experience. Build-A-Bear Workshop, a chain with over 170 stores generating $300 million in annual sales, is a teddy-bear-themed entertainment retailer whose stores are playgrounds for children.
    …
windows and doors. Besides adding value as playhouses, the boxes advertise Build-A-Bear to the child’s friends. “[You] could buy a bear anywhere” says Maxine Clark, founder and Chief Executive Bear. “It’s the experience that customers are looking for.” The experience is depicted on the retailer’s Web site, www.buildabear.com.
    Customers pay about $25 for the basic bear, but they can also buy sound, clothing, and accessories for their bear. To keep the experience fresh, Build-A-Bear regularly introduces new and limited-edition animals. Cloths and accessories are also updated to reflect current trends. There are also in-store birthday parties and an official CD. To make sure that customers have a great experience every time they visit, all sales associates attend a three-week training program at “Bear University,” and the firm offers incentive bear styles arriving weekly. Build-A-Bear stores also feature seasonal merchandise such as a King of the Grill bear for Father’s Day and a Sweetheart bear for Valentine’s Day.

Refact
The origin of the teddy bear was a 1930 incident in which President Teddy Roosevelt refused to shoot a cub while bear hunting. The spared animal was thereafter referred to as the Teddy Bear.

DISCUSSION QUESTIONS
1.    Is the Build-A-Bear concept a fad, or does it have staying power?
2.    What can Build-A-Bear do to generate repeat visits to the store?





CASE 3 WeddingChannel.com

Anne is sitting at her desk eating her lunch and surfing the Internet. For a few months, she has been preparing for her wedding, which will take place in less than a month. She found many helpful articles that gave her some good ideas. These articles also helped her face reality and change her childhood dreams of a white carriage pulled by a team of horses to a stretch limo. She gave up the Snow White wedding gown with a 15-foot train and has now settled on a sleek sheath gown.
    In planning her big day, Anne used the help of WeddingChannel.com to make a checklist of what she needs to do. The Web site helped her organize a guest list, design and buy her invitations, set up a gift registry, and post some information for her friends about how she and Steven met. They met in college and are from different cities; therefore, they decided to have their wedding somewhere in between where their friends and family could meet. She used the resources provided on WeddingChannel.com to book the chapel and restaurant where the reception would be held.
    Every year, $72 billion is …
/colors for the big day. Guests can go online and shop at the well-known stores associated with WeddingChannel.com and conveniently purchase exactly what the couple needs for their future together.



DISCUSSION QUESTIONS

(1)    What are the keys to making WeddingChannel.com a success from the perspective of the companies investing in it?
(2)    Why would a retailer want to invest in a virtual community like WeddingChannel.com?
(3)    Can you think of other retailers that might benefit from developing a virtual community?



CASE 4 The Chen Family Buys Bicycles

The Chens live in Riverside, California, west of Los Angeles. Terry is a physics professor at the University of California, Riverside. His wife Cheryl is a volunteer, working 10 hour a week at the Crisis Center. They have two children: Judy, age 10, and Mark, age 8.
    In February, Cheryl’s parents sent her $100 to buy a bicycle for Judy’s birthday. They bought Judy her first bike when she was five. Now they wanted to buy her a full-size bike for her eleventh birthday. Even though Cheryl’s parents felt every child should have a bike…
der a Serrato for Terry but that they weren’t in inventory and delivery took between six and eight weeks. He suggested a Ross and showed Terry one he currently had in stock. They thought the $500 price was too high, but the owner convinced him to try it next weekend. They would ride together in the country. The owner and some of his friends took a 60-mile tour with Terry. Terry enjoyed the experience, recalling his college days. After the tour, Terry bought the Ross.

DISCUSSION QUESTIONS

1.    Outline the decision-making process for each of the Chens’ bicycle purchases.
2.    Compare the different purchase processes for the three bikes. What stimulated each of them? What factors were considered in making the store choice decisions and purchase decisions?
3.     Go to the student side of the Online Learning Center (OLC) and click on multiattribute model. Construct a multiattribute model for each purchase decision. How do the attributes considered and importance weights vary for each decision?


CASE 5 Consumer Buying Behaviors—Is Wal-Mart in Vogue?

The September 2005 issue of Vogue magazine contained eight pages of advertisements from the world’s largest retailer, Wal-Mart. The other 792 pages contained advertisements from Ralph Lauren, The Gap, Saks Fifth Avenue, Dior, Estee Lauder, Gucci, Lancome, St. John, Louis Vuitton, Bill Blass, Yves Saint Laurent, L’Oreal, Guess Mitchael Kors, David Yurman, Clinique, Marc Jacobs, Burberry, Calvin Klein, Manolo Blahnik, Donna Karan, Paul Mitchell, Vera Wang, And Jimmy Choo, to name just a portion of the brands in this fall issue.
    The ads from Wal-Mart feature…
.
Socioeconomic Income, education, occupation.
Benefits sought To meet customers’ desires.
Usages Rate Purchase behavior (frequency), brand loyalty.

DISCUSSION QUESTIONS

1.    Is there an overlap in these two consumer segments?
2.    Can Wal-Mart changes its image and appeal to an upscale shopper, or should it stick to loyal, cash-strapped customers?
3.    Would you recommend that Wal-Mart purchase additional pages in Vogue magazine this year? Explain your rationale.



CASE 6 Dollar General and Family Dollar Cater to an Underserved Market Segment

Dollar General, headquartered in Goodlettsville, Tennessee, and Family Dollar, based in Mathews, North Carolina, are the two leading retailers in the fastest growing segment of the industry, referred to as extreme value retailing. In 2005, Dollar General has over 7,500 stores in 30 states with sales surpassing $7 billion. Its annual growth in sales has been above 20 percent for the last six years. Family Dollar, with 5,600 stores in 44 states, generated over $5 billion in sales in 2004. Both retailers are opening new stores at rates exceeding a store a day.
    The extreme value retail format has …
tracking systems, automated distribution centers, space allocation software, and replenishment systems to reduce stockouts and increase inventory turnover.

DISCUSSION QUESTIONS

1.    What is the target market of extreme value retailers like Dollar General and Family Dollar?
2.    Why are customers increasingly patronizing these extreme value retailer stores?
3.    How do extreme value retailers make a profit when their prices and average transactions are so low?
4.    Can extreme value retailers defend themselves against general merchandise discount retailers like Wal-Mart, or will Wal-Mart eventually drive them out of business? Why?



ret

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CASE 1

The Santek Images Business Unit
    Consolidated Products is a $21 billion company headquartered in Atlanta, Georgia.  The company’s five business units, which offer a wide array of products and services, are the result of an aggressive strategy of mergers and acquisitions starting in the late 1980s.  The corporate staff is surprisingly small, comprised of general management, legal staff, and human resources.  Part of the reason for this small staff is due to the eclectic array of businesses housed within one corporate entity.  A Business Week editor recently commented that “Consolidated Products could easily be broken up into five separate companies, since at one time it was five separate companies.”  The editor also said that if the company “ever learned how to leverage its size in the marketplace, Consolidated Products could be a Wall Street powerhouse!”
    While Consolidated Products is a global corporation with facilities around the world, it operates each business unit as a highly independent and decentralized company.  The corporate culture is best described as entrepreneurial, with each business unit being headed by an executive vice president who has complete profit and loss accountability.  One of the business units, Santek Images, is the focus of this case.

Santek Images

Santek Images produces instant film and the imaging products that use that film for industrial applications.  Increasingly, Santek has shifted much of its production requirements to oversees producers.  The outsourcing of finished products, also called contract purchasing, represents a 180-degree shift from the vertically integrated model that Santek pursued during the 1970s and 80s.  A key driver behind the outsourcing of non-core products was the realization that previous ways of doing business could not support 10-20 new-product launches a year, which is the target that Santek’s executive vice president has established.
Many products at Santek use self-contained instant film, which Santek refers to as media.  Only one other company in the world has similar technical capabilities.  However, Santek now faces intense competition from digital technology, forcing the unit to make digital imagery part of its image acquisition core competency.  Most outsourcing at Santek now involves product hardware, such as the product casing, rather than media. 
There are several reasons why Santek insources media while outsourcing hardware.  Most of the innovation valued by customers occurs within media rather than hardware, making media a primary area to focus research and development efforts.  Furthermore, the margins for media products are higher than the margins for hardware products.  From an investment and financial perspective, limited corporate resources are best allocated to media rather than hardware.  While hardware is necessary, it does not offer the best financial and innovative opportunities.  This does not mean that hardware is not important.  Santek recently suffered through an embarrassing recall because a contract manufacturer produced a finished product casing that cracked when exposed to high temperatures (above 90 degrees).
Asian suppliers provide virtually all outsourced hardware requirements.  While Japan is the epicenter for hardware manufacturing, other low cost areas in Asia are emerging.  Outsourcing to Asia offers two major benefits—access to technology and low cost.  As with most electronics and their supporting components, U.S. and European producers are no longer competitive.
Beginning in 2002, Santek began to actively search for contract or outsource manufacturers, particularly for camera hardware.  Unfortunately, there was no organization in place to formally support that effort.  While a small OEM group worked to find contract manufacturers during the 1970s to 1995, Santek did not endorse or focus on outsourcing as a key corporate strategy.  As a result, creating an outsourcing organization was not a major concern at Santek.
In 2001, Santek formed a contract purchasing organization, which has primary responsibility for hardware outsourcing.  The contract-purchasing director (also referred to as the outsourcing director) reports to the vice president of new product delivery.  This group has responsibility for procurement (identifying and qualifying outsource manufacturers), product quality, and working with contract manufacturers during new product development.
To date, the contract-purchasing director believes his staff has done a good job of shifting production from internal to external sources.  In addition to managing two international procurement groups, the contract-purchasing director is responsible for managing relationships with the outsource providers.  After several years of outsourcing, the director of contract purchasing, Steve Keller, started to notice that the performance gains from outsourcing were flattening out quickly.  When he recently surveyed his contract manufacturers about their perception of doing business with Santek, he was surprised by their answers.
Of the 12 contract manufacturers currently used, seven thought of Santek as just another customer.  These suppliers did not believe there was anything unique or special about the relationship.  Three other suppliers expressed serious concern about doing future business with Santek since they were dedicating their capacity (through longer-term contracts) to other customers (who were not competitors of Santek).  Two other suppliers expressed an interest in developing a closer relationship with Santek.  It appeared that these suppliers were developing new technology and products that aligned well with Santek’s future product plans.  These two also had the longest working relationship with Santek of the current suppliers.  Steve could not help but wonder if his group could do more to develop or elevate the relationship with these two suppliers.  And, if he could develop the relationship, could his group achieve greater performance improvements?

Questions:

1.    Many outsourcing decisions involve the concept of a core competency.  Define what is meant by this term.  Discuss if film technology is truly a core competency of Santek.

2.    Develop a process that would guide firms through the insourcing/outsourcing process.  Create a process that is robust enough to use across a variety of product/service applications. 

3.    A major challenge with an insourcing/outsourcing analysis involves gathering reliable data.  Discuss the various groups that should be involved when conducting an insourcing/outsourcing analysis.  What information can each of these groups provide?

4.    Do you think hardware suppliers are candidates for alliances or partnerships with Santek?  Why?

5.    Partnerships and alliances are special forms of supplier-buyer relationships.  First, define the concept of partnerships and alliances.  Second, identify when a firm should pursue a partnership or alliance with selected suppliers.  Use the portfolio segmentation tool to assist with your answer.

6.    Develop a process that firms can use when identifying and developing supply chain alliances.

















CASE 2
Bryan Janz was just arriving back from lunch when his office phone rang.  It was his wife, Nina, calling from home.  Nina told Bryan that FedEx had just delivered a package addressed to her.  The package contained a beautiful clock now sitting over the fireplace.  In fact, Nina said, “the clock looks absolutely beautiful on our living room fireplace”.  Thinking the clock was from a family member, Bryan asked who sent the present.  She said she did not recognize the name—the clock was from Mr.  James McEnroe.  Bryan immediately told Nina that she had to repack the clock because it was from a supplier who has been trying to win business from Bryan’s company.  They definitely could not accept the clock.  Nina was very upset, and responded that the clock was perfect for the room and, besides, the clock came to their home, not to Bryan’s office.  Because of Nina’s attachment to the clock, Bryan was unsure about what to do.

Questions:

1.    What should Bryan do about the clock?

2.    What does the Institute of Supply Management (formerly the NAPM) code of ethics say about accepting supplier favors and gifts?

3.    Why do you think the supplier sent the clock to Bryan’s home and addressed it to his wife?

4.   Does the mere act of sending the clock to Bryan mean that Mr. McEnroe is an unethical   
      Salesperson?





































CASE 3

VCI/Ellison, which represents the consolidation of the heavy transportation equipment units of two previously separate and regional companies, is facing worldwide pricing pressures from customers and competitors.  The ability to meet financial targets has presented a major challenge for this new global company.  With limited ability to raise product prices, the alternatives facing VCI/Ellison have become managing material costs better or absorbing price increases through lower profit margins and profitability.  Given that direct materials represent over 70% of the company’s total costs, it becomes easy to appreciate the impact that improved global sourcing efforts should have on profitability.
From the time VCI, a European company, assumed ownership of U.S.-based Ellison both companies have sought to leverage the commonality between them on a global basis.  The company concluded early on that procurement offered excellent opportunities for global synergy across the two continents.  Ellison Equipment, working with VCI, has implemented a multi-step global sourcing process designed to leverage the volumes available through the newly combined units.  This case offers insight into how two geographically and culturally diverse companies, brought together through acquisition, are attempting to gain synergy and efficiency through integrated global sourcing.  The challenges facing this global effort include not only geographic separation, but also cultural, language, technical, and business practice differences.
Global Sourcing Process Overview The global process at this company features two teams, one at Ellison Equipment and one at VCI, working concurrently on the same global project.  While Ellison had experience using cost reduction teams, VCI had never used teams within their procurement or engineering areas.  As part of this process teams are aligned on both sides of the ocean working jointly on a commodity category or project.  The teams eventually work face-to-face as they progress through the process steps.
Each global sourcing project has an expected duration of six months (although the transition to a new supplier can take much longer).  After working with an external consultant to segment its primary products into six commodity groups, VCI and Ellison jointly identified 27 project opportunities.  This process is designed to support nine projects at a time (each having a six-month duration) with three iterations or waves.  Each team pursues three categories of commodities (which may have sub-categories or sub-commodities) simultaneously, so three teams in a wave pursue a total of nine projects.
VCI/Ellison has also decided to apply its global process to contracts that the sourcing teams determine are regional rather than global (a region is defined as North America or Europe only).  A global supplier is one that can competitively supply a product or service to all of VCI/Ellison’s worldwide production and assembly locations.  To date a majority of contracts have been classified as regional.  This is not surprising given the fact that the major competitors in the heavy equipment industry operate regionally, which the supply community is structured to support.
VCI/Ellison’s Global Sourcing Process With the help of an external consultant VCI/Ellison has created a rigorous and thorough nine-step global strategy development and implementation process.  Steps 1-4 of this process involve strategy development, while Steps 5-8 involve strategy implementation.  Global sourcing project teams are responsible for the first four steps.  Step 0 involves the executive steering committee selecting nine global sourcing projects at a time (called a wave) and identifying the cost savings expected from each project.
Perhaps the most important task associated with Step 1, which is project launch, is the formation of the global sourcing teams.  Team members are selected based on their familiarity with the commodity or items under review.  Since there is usually only one engineer and buyer for the commodity, these individuals become team members almost by default. 
The team leader works with the team to develop time schedules, a list of deliverables, and expected milestones within the six-month project window.  During this part of the process the teams begin to quantify what they are studying by collecting and validating data.  Across each category there may be four or five segments or sub-categories that require separate analysis.  While each team decides on the segmentation of a category, both teams assigned to the project must agree on the segmentation.
Even thought each project technically has two teams assigned (one at each company working simultaneously), they are really one team looking at the same project.  Teams can proceed to the next process step without the explicit approval of the executive steering committee.  However, teams are required to publish progress updates weekly.  A major responsibility of the business analyst (discussed later) is to compile and provide performance updates to the executive steering committee.
Some managers consider Step 2, sourcing strategy development, to be the most interesting and critical part of the global process.  During this step the project teams identify potential worldwide suppliers.  One of the realizations when beginning this process was that supplier switching, including switching from long-established suppliers, was likely to occur.  This realization was based partly on the external consultant’s global sourcing experience.  Supplier switching can be time-consuming and difficult as new supply chain relationships are established.
From the list of potential suppliers, the teams send Requests for Information (RFIs), which they can modify to meet the specific needs of their category or segment.  The RFI is a generic supplier questionnaire that introduces the global process and requests data about sales, production capacity, quality certification (such as ISO 9000), familiarity with the equipment industry, and major customers.  It is not unusual to send 400-500 RFIs during a project, depending on the complexity of the category and segments the team is working.
The RFI is a first filter in the supplier selection process.  During this step it is critical that suppliers return a high percentage of the RFIs, which are separated and reported by region of the world.  Of the 400-500 RFIs forwarded to suppliers, a team may receive and analyze several hundred completed RFIs.  The teams also conduct a detailed supply market analysis to develop a thorough understanding of the economics and dynamics of a particular market.
Step 2 is usually the first time that the two teams working on a global sourcing project meet face to face.  The European and U.S. teams meet physically to conduct face to face analysis of the RFIs returned by suppliers.  It is each team’s responsibility to establish the criteria for determining which suppliers will receive Requests for Proposals (RFPs).  A key decision during Step 2 is whether a procurement opportunity appears to be regional versus global.  A lack of globally capable suppliers can make a project a regional opportunity.
Step 2 requires a major effort on the part of engineering.  Engineers on both sides will examine drawings in an effort to commonize part specifications between locations.  While a project team may conclude that a global supply source does not exist, there may be opportunities to commonize or standardize specifications across the two locations.
Step 3, requests for proposals, features the development, sending, and analysis of formal proposals to the most promising suppliers identified in Step 2.  The average number of proposals forwarded to suppliers per project is 20-30.  Suppliers typically require six weeks to analyze and return the RFPs.  The teams strive for a high percentage of returned proposals, similar to the RFIs.  Team leaders, representing the project teams, report RFP progress to the executive steering committee at a weekly meeting.
Teams are responsible for analyzing the returned supplier proposals.  Like the RFIs, teams can set their own evaluation criteria and weights, but members must reach consensus in their choices.  The proposal allows suppliers to provide design suggestions.
The teams usually meet via video or audio conferencing to review the proposals.  Engineers again take a lead role in evaluating technical merits.  Complex purchase requirements may require teams to meet face-to-face for a second time.  Using standardized spreadsheet tools that are available to all teams, each team analyzes its proposals and decides, based on the analysis, which suppliers will be invited to negotiations. 
A negotiation workshop takes place at VCI’s European learning center during this step.  This session has several objectives—team members receive training in negotiation, the project teams develop their negotiating strategy, and the teams select a negotiation leader.  If a team determined that a sourcing opportunity was regional, negotiation will occur separately by region.  Teams select regional negotiation leaders if the project is a regional opportunity or a single negotiator if the project is global.  The decision of who should be the negotiating leader is based on discussion and consensus rather than voting.  Of the first 27 projects, fully one-third of the negotiating leaders were selected from outside the project teams.
Step 4 involves recommending a strategy and negotiating with selected suppliers.  Project teams make a recommendation to an executive committee, specifically the vice presidents of purchasing and engineering from VCI and Ellison.  The executive committee may ask questions but to date has not overturned any team recommendations.  Team recommendations include the selected supplier(s) with expected savings and timings identified.  The teams also identify whether the suppliers are regional or global but do not recommend contract length.
In this step the negotiating team probes and discusses in-depth the proposals submitted by suppliers.  Suppliers can be disqualified if engineering determines the supplier cannot satisfy technical requirements, or the team is not satisfied with the commercial issues
All negotiation in Step 4 is conducted face to face with suppliers at VCI/Ellison sites.  Half the negotiations so far have occurred in the U.S. and half in Europe.  Before suppliers arrive they receive feedback concerning the competitiveness of their proposal, which they are allowed to revise before negotiations commence.  Suppliers may be excused if they are informed that they are not competitive and choose not to revise their proposal.  Once the lead negotiator takes over, the team leader’s role begins to diminish (unless the team leader is also the lead negotiator).  The team leader usually remains as part of the negotiating team.
Step 5, called supplier certification, features purchasing and engineering groups receiving the team’s recommendation and preliminary terms of the negotiated agreement.  At this time functional directors will begin to budget expected savings from the proposed contract into their financial projections.  Supplier site visits can occur during this step by representatives of the functional groups.  For example, engineering, procurement, and quality assurance may want to validate a number of topics during this step.  The time frame for this step varies from one month to over a year.
Step 6, finalizing the contract, involves crafting the final contract based on the outcome of the negotiations.  The negotiation leader remains with the process until the contract is complete.  While the legal department is also involved, a buyer writes the contract using an agreement template.  Contracts are typically three years in duration.  Both sides of the ocean are involved in formalizing the contract if the agreement is global rather than regional.
Global agreements differ from traditional contracts.  They include productivity improvement requirements to offset material increases.  The agreements also encourage technical advancements by the supplier to further reduce material costs or enhance product performance.  This process also includes a formal process to manage improvements, whereas the process for previous or non-global agreements has been informal.  And, in a somewhat significant departure from previous contracting practices, incentives such as 50/50 improvement sharing are starting to appear.
Step 7, sample testing and approval, assesses the samples provided by the selected supplier.  Production facilities go through a production readiness stage, initial sample inspection reports are developed, parts are checked off of production tooling, and the negotiation leader develops a production rollout plan with help from his or her counterpart on the other side of the ocean.
Step 8, the concluding step of a global project, is the production readiness stage.  The selected supplier may send a day or weeks worth of supply to be used in actual production.  Logistics becomes part of the implementation team if there is a switch from one supplier to another.
Organizational Enablers VCI/Ellison has put in place certain enablers that support global sourcing.  This includes the formation of an executive steering committee, the use of global teams, formally selected team leaders, and the creation of a business analyst’s position to support the operational and analytical needs of the teams.
An executive steering committee at each unit reviews and prioritizes projects for study.  A sourcing director at VCI and a counterpart at Ellison drive the process at both organizations.  Working jointly, these executives recommend projects for study, solicit input from functional areas in terms of cost savings and quality improvement opportunities, develop a plan to pursue the project (including assembling a cross-functional team), track the status of each project through weekly progress updates, and manage the global process to ensure its continued success.  The executive steering committee members conduct a video conferencing meeting each week for two hours.  This meeting also involves team leaders for projects that are in process.
Cross-functional teams are an integral part of this process.  Two teams, one from VCI and one from Ellison, work simultaneously on the same sourcing opportunity, each with a formal team leader, two functional members (usually from engineering and purchasing), and a business analyst that supports both teams.  Each project consists of seven combined positions across two teams.  The team leader and business analyst are full-time assignments while the buyer and engineer provide a part-time commitment.
Teams are responsible only for the first four steps of the global sourcing process.  The two teams usually come together physically two or three times over a project’s duration.  Both sides agree, however, that face to face interaction is time consuming.  At the conclusion of each project the teams are required to write a “white book” documenting the lessons learned from their experience. 
With any team-based approach the role of the team leader is critical to success.  Project leaders are responsible for planning team meetings, which are held once or twice a week depending on the phase of the project, and reporting project status to the executive steering committee.  Planning includes setting the meeting agenda, ensuring the global process steps are followed, and working with team members to meet time lines and achieve project goals.  The leader also communicates with each member’s management when necessary to ensure commitment.  Agreement is widespread that the team leader is a critical part of the process, particularly when the leader must work with members to balance their priorities while still challenging the team to achieve demanding performance improvement targets.
Each set of teams that works on three projects simultaneously has a business analyst assigned to support the effort.  The time required for managing requests for information (RFIs) and requests for proposals (RFPs) across two continents is extensive.  VCI/Ellison created a full-time business analyst position to manage the required tasks when pursuing global agreement.  Exhibit 1 outlines the key features of this position.


Exhibit 1
Positive and Negative Features Related to
the Business Analyst Position

Positive Features    Negative Features
Experience from the position builds expertise about the global sourcing process
    Managing three projects simultaneously creates an intense work pace
Full-time commitment to the process helps the business analyst avoid other job distractions    Process has some inefficiencies (faxing, handling reams of paper, some software inefficiencies), creating additional and perhaps unnecessary work burden

Team leader and business analyst are key “point people” to management and suppliers
    Long and stressful days can affect morale and promote turnover
Given the work required to manage RFIs, RFPs, and negotiations, the global sourcing process would not succeed without the analyst position and a strong analyst
     Too many RFI suppliers pass to RFP stage, creating intensive work requirements for the analyst
Business analyst position prepares individuals for future sourcing careers     Obtaining drawings for RFPs from engineers is a time consuming process


The analyst is central to the success of the RFI and RFP process.  Analysts compile and send RFI and RFP packages to suppliers, track and report response rates, input RFI and RFP response information into a sourcing software system and database, and follow-up with suppliers who are late with their submission.  The business analyst also answers any questions that suppliers have or forwards their inquiries to the appropriate procurement or engineering representative.  The analyst also provides feedback to suppliers concerning the competitiveness of their initial quotation or proposal.  Finally, analysts have responsibility for forwarding the project database to their counterpart team across the ocean on a regular basis.  Team members are relieved of extensive analytic and clerical duties, which allows members to commit time to value-adding activities.
While management views the business analyst position as an ideal way for high-potential individuals to gain exposure to purchasing and sourcing, there are some issues with this part of the process.  Managing three projects simultaneously creates an intense work pace that affects morale and promotes turnover.  Furthermore, one analyst maintained that too many RFPs are forwarded to suppliers, resulting in an intensive work requirement.  Obtaining the necessary drawings from engineering is also a time consuming activity.  Finally, the process to coordinate team activities between the U.S. and Europe presents some difficulties.  The analyst must fax documents daily, manage reams of paper, and use software that was not compatible between the U.S. and European systems.
Global Sourcing Outcomes A number of themes emerge when managers describe the value of taking an integrated approach to worldwide sourcing.  Perhaps most importantly, global sourcing was the first major integrative effort undertaken between VCI and Ellison.  This process demonstrated that the two organizations could work jointly to capture the benefits offered by taking a global rather than regional perspective, although the company is somewhat disappointed by the number of opportunities that were determined to be regional rather than global.  Second, this process demonstrated that material savings are available from a disciplined approach to worldwide sourcing.  Contracts resulting from this process average over 10% in material price savings, which is not as high as the savings that Santek is realizing.  Part of this is due to the fact that many of VCI/Ellison’s agreements are regional rather than global.
Global sourcing has also narrowed the differences between Ellison’s and VCI’s sourcing practices.  Ellison has historically been more relationship focused with suppliers and viewed negotiation as a means to build upon those relationships.  VCI has shown a greater willingness to switch suppliers more frequently and faster due to cost and quality considerations.  The global process has enabled the two companies to converge on a consistent sourcing approach that combines the best features of both sourcing philosophies.
A repeated sentiment among managers is that this nine-step process introduced a discipline to sourcing at VCI/Ellison.  Each sourcing project moves lock-step over a six-month period with weekly reporting to an executive steering committee.  Global sourcing teams must meet deadlines and milestones, make sure information gets to suppliers, and thoroughly research the supply base before negotiating and awarding contracts.  The process has made everything “official” with suppliers, who have taken VCI/Ellison’s global efforts seriously.
The process is not without less positive outcomes or observations.  One issue concerns a lack of knowledge between VCI and Ellison personnel about each other’s supply base.  As a result, each side during a project has had a natural tendency to favor its own suppliers.  When the two project teams work together face-to-face, they have to spend time sorting out who the best suppliers from each side are globally.  This “home market bias” has hindered the process to some degree.  Global sourcing teams have been forced to learn more about each other’s suppliers, which requires greater effort and an open mind.
As expected, all 27 global project teams to date have not been equally effective.  One team leader argues that any differences in performance are due to the quality and effort of the team members and leaders rather than project complexity.  This highlights the need for careful member evaluation and selection.  Unfortunately, team leaders do not receive special training before they assume that critical position.  And, team members are usually selected because they are most familiar with the item or category under study rather than their ability to be effective team members.
While external consultants played a critical and highly visible role in developing and using VCI/Ellison’s global process, managers point out that the use of consultants caused some concern.  For example, consultants assumed the role of team leader with several early teams, raising questions concerning who should lead the teams and their qualifications.  The consultants often dictated what the RFPs should contain, which created some disagreement within project teams.  The consulting group also insisted on top management presence at weekly meetings.  While this demonstration of executive commitment was valuable for the first few months, later meetings became too detailed to warrant executive attendance.  Finally, too much time was spent educating consultants about the heavy equipment industry.  There was some surprise initially at the lack of experience of the consultants sent to work with VCI/Ellison on a day-to-day basis.
Concluding Observations An issue that all companies should address is whether the supply base that supports their industry has global capabilities.  Most competitors in the heavy equipment industry operate regionally, which the supply community is structured to support.  The issue of a regional versus global industry raises a critical question—is the heavy equipment industry, with its regional perspective and different customer tastes and requirements, a true global industry?  How much time should VCI/Ellison spend searching for common interests, including in procurement and design, when perhaps limited opportunities are available?
As VCI/Ellison completes the first major iteration of its global process (three waves of nine projects each that addressed the entire product structure), some managers are openly concerned about losing the discipline associated with this process.  When first introduced the global sourcing process was something new that received special attention from executive leadership and suppliers.  Some managers have expressed a concern that internal participants and suppliers already perceive the process is “winding down” and that most of the available savings have been captured.  Maintaining momentum rather than succumbing to complacency will likely require a group that is committed to driving this process forward.  In all likelihood that group must be the executive steering committee that is responsible for directing VCI/Ellison’s global efforts.









Questions:

1.    What is global sourcing?  Are there different levels of global sourcing?

2.    What are some of the differences, including cultural differences, between VCI and Ellison?  Can these differences affect the success of the company’s global sourcing projects?

3.    Why is this company pursuing integrated global sourcing?  Describe the global process that VCI/Ellison has implemented.

4.    The assessment of worldwide suppliers creates an extensive workload.  Discuss how VCI/Ellison supports the analysis requirements faced by each global sourcing team.

5.    Discuss the concept of a “wave.”  Why does executive management want each global sourcing project to last six months and move through a lock-step series of steps?












































CASE 4

Faced with intense competition, increasing expectations from customers, reduced product life cycles, and localized geographic markets, Whirlpool Corporation (a Fortune 500 manufacturer of appliances) realized that the need to achieve a competitive advantage from its sourcing and material efforts was greater than ever.  Part of the strategy to achieve this advantage involved pursuing an alliance with a key steel supplier.  Steel is a major component used across all of the company’s finished products (such as washing machines, dishwashers, refrigerators, and others).  The purchasing managers at Whirlpool faced a number of questions with regard to their purchasing strategy:
•    What do we need to do to be competitive?
•    Who is best suited to be the primary steel supplier?
•    What do we need to know, and how do we get the information required to answer this question, especially with regard to our organizational culture, technological roadmap, and where both organizations are moving in the long term?
•    How do we implement a strategic alliance?
•    How do we establish a strategic alliance in terms of confidentiality agreements, termination agreements, and negotiation strategies?
•    How do we provide the supplier with evaluations to ensure that this alliance continues, with regard to continuous performance, goal achievement, and commitment?
•    What do we do if we do not meet our objectives—change the situation or simply terminate the agreement?
Whirlpool realized it needed to reduce the number of steel suppliers it used and locate a supplier with a common desire to enter into a longer-term alliance.  Whirlpool’s organizational goals were to leverage the selected supplier’s technical capabilities through early supplier involvement, day-to-day redesign support, and process improvement.  At the same time, top executives realized that in order to obtain these benefits, it was important that the supplier partner perceive value in the relationship.
While all of this was occurring in 1984 at Whirlpool, the management team at Inland Steel was considering a different set of questions.  Four vice presidents of marketing at Inland Steel, an integrated steel producer located in the same geographic region as Whirlpool, were reviewing their market strategies and the recent changes that had occurred in their strategic alliances.  They had made the decision to reduce their customer base, and were forming a new management plan.  This was part of Inland’s Customer Relationship Management strategy, which entailed reducing their customer base in order to serve only their preferred customers that would yield the highest long-term profitability for the company.   This strategy was a direct result of Inland Steel’s total quality management program, which dictates that to delight the customer one must identify key markets and focus on those markets.  
A major component of this market strategy was to approach key customers with the idea of entering into long-term agreements.  In doing so, Inland Steel realized that the best opportunity for reducing costs was to become involved early in new product design with key customers.  However, to achieve this objective, the vice presidents realized that significant capital investment would be required to update Inland Steel’s facilities with state-of-the-art steel processing technology to align technologies with key customers.   In some cases, this involved some degree to risk, as aligning capital investments with specific key customers could “shut out” new business with other potential customers.    However, the management team reached a consensus that the only way to succeed in the current market structure was to reduce costs through early involvement in customer new product designs, and to back this up with capital investments in design capabilities and new facilities.
Meanwhile, Whirlpool executives were mulling over whether Inland Steel was the right supplier to form an alliance with.   Whirlpool Corporation had used Inland Steel as a supplier for several years, but had used many different steel suppliers during this period.   The strategy of forming a formal buyer-supplier partnership was a relatively new one.  As these two companies explored the idea, it became obvious that a complementary common strategic vision existed between the two companies, which could make such a partnership a reality.  This common vision was based on the fact that the Whirlpool Corporation needed to sustain a competitive advantage and support its direct customer relationships, while Inland needed to manage the transition inherent in a customer-focused market strategy.  Thus, Whirlpool Corporation sought to work with Inland Steel to realize reduced costs vis-à-vis the competition, and Inland sought to obtain a major share of Whirlpool’s steel contract.  While this initial concept seemed straightforward, it required almost seven years to make it a reality.
The vision was made a reality by first understanding that reducing cost did not simply mean lowering the price paid per ton of steel, but rather to take cost out of the business processes, which takes much more time.  Linkages throughout every step of the value chain, not just between purchasing and sales, had to be established (See Exhibit 1).  The end goal became to maximize profitability at both companies, while not relying on explicit formulas and equations formalized in contract form.  Along the way, the companies encountered a number of obstacles.  However, as the vice president of purchasing at Whirlpool Corporation described the process, “Neither of us let these problems get in the way of cost reduction efforts, which in the long run far exceeded the changes in market steel prices.”
Overcoming the obstacles in the relationship required a seamless organization and the elimination of levels of bureaucracy.  Functional personnel in each firm had to be able to communicate directly with their counterparts in the other firm, all the way to the chief executive office.  The underlying foundation of the relationship was challenged many times during the early years.  “The reason why this relationship works,” says the vice president of marketing at Inland Steel, “is that Whirlpool Corporation created an environment that allowed questions to be laid out on the table every time a new issue came up.”
A Roadmap to Trust
The following is a timeline of the development of the strategic relationship between Whirlpool Corporation and Inland Steel.  In 1984, Inland Steel began to share its market strategy and management vision with Whirlpool.  The sharing was unique because the supplier (Inland Steel) actually took the initiative when pursuing the strategic alliance.  By 1986, Whirlpool had reduced its supply-base from eleven steel suppliers to seven, and Inland had invested over $1 billion in new capital investment.  This investment was specifically designed for Whirlpool’s steel requirements in the appliance industry, which could not be used in their other major market, the automobile industry.  Inland Steel needed to be granted access to Whirlpool’s engineering personnel to identify the different ways that Whirlpool Corporation was using steel and convert these into process specifications.  At this point, Inland was given assurances that it would receive a larger volume of Whirlpool’s orders.  One of the most important of Whirlpool’s later actions was that the company actually did place the orders it said it would.
In 1988 and 1989, the alliance was reevaluated by Whirlpool Corporation, and Inland’s orders from Whirlpool increased by 30%.  Simultaneously, Inland began the first of their joint cost-reduction projects, which sought to eliminate cost from the business processes.  By 1990, Whirlpool had reduced its number of steel suppliers to four.  The companies held a joint leadership meeting to bring discussion of the alliance to top management’s attention and to formally develop a supplier council.  The companies also developed a long-range vision, which was deemed critical to the success of the partnership.
The alliance solidified in 1993.  By this time, Inland Steel had established resources at its technical center dedicated to the needs of Whirlpool.  In 1994, Whirlpool increased its orders to Inland Steel by another 15%, bringing the total to approximately 80% of Inland’s total steel requirements.  At this point, the two companies were sharing joint strategies, and Whirlpool’s organizational restructuring was developed around the Inland Steel relationship.  Purchasing management was actively involved in top-level strategic planning.  To date, the strategic relationship between Whirlpool and Inland Steel is in place and producing benefits that a traditional relationship could not have produced.
Issues and Concerns
In the process of developing greater trust between the two organizations, the companies had to address a number of issues directly.  First, different employee practices between the two companies often led to conflict.  This conflict was reduced in part by promoting greater cross-cultural interaction, such as having a purchasing manager work at the supplier’s plant, which helped to smooth over any differences in corporate culture that existed.  The sharing of cost data was also problematic, but this happened in segments so as to target specific cost drivers in different areas of the business process.  In the long run, by focusing on quality improvements and reject-rate reduction, hourly labor costs became almost a non-issue.  Even though Whirlpool had several CEOs during this period, the relationship between the companies remained intact because of the level of trust that had developed over time.  The relationship was no longer between people but rather between organizations.
Inland Steel was also concerned that a single-sourcing policy might cause it to lose touch with the market, and was concerned with confidentiality of information.  At the same time, Whirlpool was concerned about the technological risks of relying on only one supplier.  However, these concerns were ultimately dwarfed by the belief that both companies would be low-cost producers in the long-term because of the relationship.

Mechanisms to Support the Relationship
Executive management at both companies recommend that organizations considering pursuing partnerships need to think early on how they will deal with issues such as those just mentioned.  Although no single right answers exist, there are different approaches to these issues that must be tailored to the specific situation.  For example, significant organizational realignment was needed so that people could work specifically with their counterparts in the other firm.
The creation of a supplier council was also instrumental to the relationship.  This approach permitted the sharing of strategies and tactics so that each party became aware of each other’s activities.  Senior management discussion, both structured periodic meetings and informal spontaneous telephone conversations, also helped promote greater trust.  Quarterly performance reviews by Whirlpool were helpful to Inland for understanding how well they were meeting performance expectations.  Engineers from Inland were also co-located at Whirlpool’s product development center, which created many other informal avenues for communication.
Whirlpool has begun to apply the same “customer service” principles used by Inland to their own customer based.   Whirlpool’s CEO has redefined his company’s mission as a fabric-care of a food-preservation enterprise rather than as a washing-machine or refrigerator maker.   Whirlpool sales executives recognize that certain distribution channels make up the majority of their sales volumes – in this case, what they call the “Power Retailers”, such as Circuit City, Sears, and Electric Avenue.   These retailers demand 100% availability, and Whirlpool’s logistics managers meet this expectation.   A second set of customers, building contractors and government agents, purchase in smaller volumes, but also require higher levels of customer service.   Thus, they promise close to 95% availability for this group.   Finally, the “Discount Outlets” and “Mom and Pop” operations require 85% availability, as they purchase infrequently and in smaller volumes.   In effect, a different customer service standard is set for different customers, depending on their importance. 
The underlying outcome for both parties in this agreement is that the relationship became viewed as a covenant, which implies a greater commitment than a contract.  In the words of one Inland Steel executive, “A covenant implies a promise that is enduring and provides a way to manage expectations.  The single most important tenet of the relationship is the need to satisfy the end consumer who purchases the finished appliance.  By focusing on this covenant, the relationship should survive and prosper over the long term.”
Questions:
1.    Discuss what the following statement means: ‘It can take years for a buyer/seller partnership to begin delivering results.’

2.    Discuss the advantages of having point-to-point contact (Exhibit 1) between functional groups at different companies.  Are there any disadvantages to this approach?

3.    What role does trust play in the relationship between Whirlpool Corporation and Inland Steel?  Provide examples from the case that illustrate trust within this relationship.

4.    Why is it important to have a strategic fit between the companies involved in a buyer/seller alliance or partnership?

        5.    When formulating its purchasing strategy, what other strategy alternatives besides an alliance with another company could Whirlpool Corporation have pursued?
   
EXHIBIT 1
Supply Chain Linkages Between Whirlpool Corporation and Inland Steel
Supplier    Buyer
Manufacturing    <——————————>    Manufacturing
Human resources    <——————————>    Human resources
Accounting    <——————————>    Accounting
Engineering    <——————————>    Engineering
Sales/Marketing    <——————————>    Purchasing
CASE 5

    Consolidated Products is a $21 billion company headquartered in Atlanta, Georgia.  The company’s five business units, which offer a wide array of products and services, are the result of an aggressive strategy of mergers and acquisitions starting in the late 1980s.  Exhibit 1 provides an overview of Consolidated Products and its five primary business units.  The corporate staff is surprisingly small, comprised of general management, legal staff, and human resources.  Part of the reason for this small staff is due to the eclectic array of businesses housed within one corporate entity.  A Business Week editor recently commented that “Consolidated Products could easily be broken up into five separate companies, since at one time it was five separate companies.”  The editor also said that if the company “ever learned how to leverage its size in the marketplace, Consolidated Products could be a Wall Street powerhouse!”
    While Consolidated Products is a global corporation with facilities around the world, it operates each business unit as a highly independent and decentralized company.  The corporate culture is best described as entrepreneurial, with each business unit being headed by an executive vice president who has complete profit and loss accountability.  This case focuses on the Engineered Materials business unit. 

ENGINEERED MATERIALS
The Engineered Materials business unit, acquired in 1999, is the newest and smallest addition to Consolidated Products portfolio of companies.  Part of this business unit’s efforts over the last year have centered on becoming more integrated across the various functional groups that make up the business unit.  Unfortunately, this unit was previously part of Andreas Manufacturing, an old-line company with a strict hierarchical culture.  Executive managers at Consolidated Products knew this purchase would present some interesting challenges regarding how this unit would fit in with the entrepreneurial culture that Consolidated Products has tried to create.  Unfortunately, Engineered Materials is struggling.  In fact, internal problems created by the efforts to change the culture helped push 2003 sales down 8 percent as the rest of the industry increased by 5 percent.
Executive management believes that the use of cross-functional teams is a primary way to change the unit’s culture while achieving major performance improvement savings.  One of the teams that management expects to deliver major cost savings is the composite materials team.  This team, chartered in November 2002, had initial savings targets of 15 percent cost and productivity savings, which translated to $3 million in annual savings.  The team, which has been meeting on a regular basis for 12 months, has struggled to develop a purchasing strategy for composite materials.  Unfortunately, this team is not working well together or making much progress, which has frustrated executive management and has affected the financial projections for 2004 and 2005.  The team has fallen far short of its expectations.  While no one has formally identified the exact reason(s) for the less than optimal performance, an internal consultant has interviewed several team members.  Examples from comments made by these team members include—
?    Some of the team’s members are not that committed to the assignment.  One even commented that his regular job responsibilities come first.  After all, that’s where his manager really holds him accountable.  And, he continued, what is really the risk of not supporting the team?  The way this member sees it, the real risk comes from putting in too much time on the team and neglecting “the real work.” 
?    Some of the team members maintain they do not really understand the team’s goals.  The goals that the team developed are vague, or simply address team behavior.  For example, one goal is for the team to “meet once a week.”
?    While the team has a formally designated leader, he spends too much time talking and not enough time listening.  He also gets angry when team members don’t agree with his position on an issue.  Several members commented how rude he can be to team members.
?    Some members perceive that management is not forthcoming with the necessary resources.  In the opinion of one member,” Team members spend too much time requesting the necessary resources rather than working together on team assignments.”
?    One member asked what qualified him to be on a team.  He said he was never on a cross-functional team in his 20 years with the company.  How is he supposed to know what it takes to be part of a “higher performance work unit?”  This member further questioned whether the Engineered Materials unit, given its history and culture, is ready for team-based management.
Although the methodology was not rigorous, the internal consultant quickly determined that the use of teams at this business unit was in serious need of help.
Questions:

1.    Gaining team member commitment is critical to team success.  Discuss how this unit can use its employee performance evaluation and reward system can encourage members to support cross-functional project teams.  Be sure to provide examples of the kinds of rewards available to team members.
2.    Goal setting is also important to team success.  Discuss how organizations and teams should establish goals, and why having team goals is important.
3.    Research has demonstrated a strong link between effective team leadership and cross-functional team success.  Describe the characteristics of an effective team leader.  Next, describe the responsibilities and requirements of cross-functional team leaders.
4.    Identify the kinds of resources, in general, that cross-functional sourcing teams should be provided to be successful.  (Note: A specific team could differ in its needs compared to other teams)
5.    Identify the types of training that team members at Engineered Materials will likely require before they can effectively support team interaction and activities.