MNGT 4800_Exam5/Final MNGT 4800
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This 19 page Study Guide was uploaded by Peyton Oglesby on Sunday May 1, 2016. The Study Guide belongs to MNGT 4800 at Auburn University taught by Dr. Peter Stanwick in Spring 2016. Since its upload, it has received 41 views. For similar materials see Strategic Management (Section 009) in Business, management at Auburn University.
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Date Created: 05/01/16
EXAM 5 STUDY GUIDE LEGO LEGO History Privately held Danish company founded in 1932 o Headquarters in Billund, Denmark (focused on triple bottom line, environmental performance, etc) o 7,000 employees worldwide o 5th-largest toy producer in the world by 2009 Culture o Motto: “Only the best is good enough” o Vision: “Inspire children to explore and challenge their own creative potential” Management o CEO, CFO, plus 4 executive VPs o Jorgen Vig Knudstorp selected CEO in October 2004 LEGO Products & Markets • LEGO brick (“Toy of the Century”) introduced in 1958 • Sold in more than 130 countries • Product segments o Pre-school products (DUPLO) o Creative building o “Play theme” products o Licensed products o LEGO education o LEGO games • Percent revenues by region • Professor comments: o Corporate level strategy for LEGO- related-linked corporate level strategy o Multidivisional structure Supply-Chain Issues o Development • Proliferation of complex LEGO sets-Star Wars and the Death Star • Difficulty with inventory management • High investment in injection molds (production costs)-Darth Vader helmet o Production • Forecasting errors-highly cyclical and highly unpredictable. • Seasonal fluctuation in demand • Activities allocated by branding strategy • Solutions o Development • Limit growth in product components • Then gradually reduce product line o Distribution • Create clearly defined service policies with retailers • Centralize five European distribution centers in Czech Republic • Outsource operations of distribution centers o Production • Transfer production to lower-cost plants • Target large external subcontractors to achieve economies of scale Professor comments: o Retailers input is critical with forecasting Lessons Learned Outsourcing partners must provide good strategic fit Outsourcing is not a simple solution o Increased complexity o Increased need for communication Value of process documentation o Transparency o Control o Understanding of LEGO’s own processes and structures 3 Take-away points: o Increased complexity o Increased need for communication o Increasing the demand for a partner that strategically fits Lego – Flextronics a “troubled” marriage • Outsourcing collaboration with Flextronics canceled after three years • Failed to reduce LEGO’s operational complexity • Too rapid pace of transition-lego had to change from internal to external • Partner misalignment o LEGO Seasonal fluctuations and unpredictable demand Needed assistance with manufacturing and kit assembly o Flextronics Stable and predictable demand to achieve economies of scale Specialized in products with high technological content Professor comments: o They outsourced to Flextronics For cost savings Economies of sale And reduce complexity of operation o Why the picked Flextronics Values Safety Quality Overview of Flextronics Market Segment Portfolio (2007) • $31 billion in annual sales • 160,000+ employees worldwide o 120,000 in Asia o 90,000 in China • Operating in 30 countries • 27 million square feet of capacity in nine industrial parks • Multiple large customers • Professor comments: o Prior to their partnership with Lego, Flextronics NEVER had experience with toy manufacturing o FlextronicsàUnrelated diversified company See slide 9 for Exhibit 7 Professor comments: o Lego learned two critical lessons It is a lot harder to explain to someone else what you’re doing They undervalued their expertise in production, they had a significant core competency Communication Issues: • LEGO used word-of-mouth processes that were supported by its existing internal operations • Not clear how info was to be transmitted between the companies o LEGO needed to provide to Flextronics with: Product design specifications Manufacturing process info Accurate scheduling forecasts o Flextronics needed to provide LEGO with: Work process documentation Production scheduling info Variances in changes that it could accommodate Professor comments: o Word of mouth is dangerous, you’re relying on a small group of people transferring their knowledge Effective Supply Chain MNGT • Create a global sales & operations planning process o Address sales, production, & product development o Establish communications lines o Provide interface between production activities • Data consolidated at site level • Monthly executive sales & operations planning meetings • LEGO’s new success criteria for global production o It is easy to move technology-it takes more time to build competences o A clear plan for training and education shall be present o There shall be local leaders who know the working culture in the country o There shall be a clear key figure structure which ensures actual benchmarks/KPI between the factories Vertical Integration Benefits o Lowering costs o Securing critical supplies o Facilitating scheduling and planning o Facilitating investments in specialized assets o Improving quality Risks o Reducing quality o Increasing costs o Increasing the potential for legal repercussions o Reducing flexibility Transaction Costs Searching for a partner Negotiation Contract monitoring and enforcement Opportunism-seeking self interest with guile Incomplete contracting o Difficult to specify expectations o Hard to measure performance and outcomes Information asymmetries o Possession of private information o Crowding out of desirable foods and services by inferior ones LEGOs Level of Integration **See slide 16 for figure** Alliance Management Capabilities Partner selection and alliance formation Alliance design and governance Post-formation alliance management Additional Considerations for Offshoring • Increased complexity o Ex: International regulations • Increased risks o Ex: Intellectual property protection • Coordination challenges o Cultural differences o Increased distance between companies o Increased distanced between production location and end market o Language differences o Time zone differences o Currency differences LEGO’s Strategic Choices • LEGO diversified product line to offset losses o Neglected core product at time of intense competition o Diversified into theme parks, clothing, television, etc. o Led to a significant increase in complexity and inefficiencies Unique bricks added for each new product Roughly 1,100 suppliers o Refocused company’s strategy on shared vision Be the best at creating value for our customers and our sales channels Refocus on the value we offer our customers Increase operational excellence o Comprehensive strategy to “right size” operations Divested theme parks Decision to outsource and offshore noncore activities LEGO Production Value Chain “Lego is for Girls” • Five past strategic initiatives aimed at girls failed • New LEGO Friends aimed at girls five years and older o Newly designed mini-figures with back stories o Six new LEGO colors • $40 million global marketing push • Must overcome perception of LEGOs as a “boy thing” GE GE History Immelt started on Sept 7, 2011 as CEO o He transitioned GE from commodities manufacturer to services Post 9-11 economic slowdown o Aviation and energy were hit hard o Insurance lost $600million o GE’s growth rate was halved o Immelt’s response to 9/11 economic effects Cut dividends by 68% Downsized work force by 10% $15 billion liquidity injection from Warren Buffet 2008-2010 Financial recession o relied on GE Capital for >50% of profits o 2009-missed quarterly earnings forecast o AAA credit rating downgraded o Immelt’s response to financial recession Corporate restructuring Ongoing acquisitions GE PESTEL Framework Political o Border security reforms o 9-11 hijacking Economic o Credit Shortage o 2008-2010 financial recession o collapse of real estate market Sociocultural o Growing demand for health care in emerging economies o Environmental concerns Technological o Medical research o Advances in information technology Environmental o Water shortages o Global warming Legal o Consumer protections aimed at limiting power of insurance companies o 2010 Affordable Care Act “Ecomagination” Utilize GE’s core strengths in industrial engineering to develop more efficient products and services o Increase revenues raised from ecomagination products o Increase investment in green technology R&D o Increase communication with the public o Improve GE’s own energy profile Results o Program revenues grew 260% to $18 billion by 2009 o GE ranked as #17 Most Innovative Company in the world o Created nearly 100 new green products “Healthymagination” • Leverage the company’s technical knowledge, global position, and financial strength to transform the health care industry • How much can healthymagination help to: o Address health care needs of developing markets o Restore GE’s stock price from $20 to $60 per share o Recover $200 billion in lost market capitalization o Stave off calls for further divestment o Create synergy across GE’s business units o Preserve Immelt’s role as CEO? GE Product Scope A very diversified company **See slides 7-10 for figures** Reverse Innovation- Developing products specifically for emerging markets such as China and India, and then introducing these innovations into developed markets like the United States Exs: o Portable ultrasound device (China) Started as bottom-up strategic initiative by a local team Later introduced in the United States as the Venue 40 for $30,000 High demand from general practitioners who cannot afford larger models Why Participate in Reverse Innovation? • Markets in developed economies are heavily saturated • Healthcare providers in emerging economies cannot afford to purchase GE’s traditional high-end machines o Strong need for improved medical care o Annual growth rates in emerging countries can be as much as three times higher • Adapt to the demands of emerging markets to gain entry and preempt competitors • Achieve profitability by selling significantly larger quantities of lower- cost devices • Sell to niches with similar demands in U.S. market “healthymagination” – Internal Fit 3 Internal fits 1. The ability to learn/learning curve a. Learn to be more innovative 2. Leverage core competencies 3. Developing valuable resources Less of a natural fit for GE’s expertise in industrial engineering Learning curve advantages from ecomagination Rare and valuable resources o High profile health care advisory board o Reputation for developing cutting-edge technology o Deep financial pockets o Global market presence Core competencies need to be reorganized and leveraged o Embrace reverse innovation o Create mechanisms for internal knowledge transfer o Retrain managers to be flexible under conditions of high uncertainty o Increase relatedness and communication across business units “healthymagination” External Fit Unmet health care needs in **targeted emerging countries markets o Rapidly growing populations o China, Brazil, India- about 2.7billion Passage of the U.S. Affordable Care Act o Political climate subject to change o Not safe to depend on federal subsidies **See slide 15 for VRIO Analysis** Elements that are all VRIO o Health care advisory board o “healthymagination” products like Vscan “healthymagination” Challenges Established competition in the health care sector o Puts downward pressure on high end products Implementing new business model (reverse innovation) Changing managerial mindsets Gaining employee buy-in Engaging the public Internationalization Monitoring ongoing changes in the external environment Increasing shareholder value GE’s other Stakeholders External o *Customers* have the most gain because the direct impact this initiative has on their healthcare o Suppliers o Creditors o Alliance partners o Communities o Unions o Governments Internal o Employees o Stockholders o Board members **SLIDE 18 IS VERY IMPORTANT** “healthymagination” assessment process Increase value gap: reduce cost and adding calue by increasing access and quality See exhibit 6 on slide 19 **See slides 20-22 for various figures** UTC: United Technologies Corporation History/Background $31 billion global corp. 7 business units and a standalone research center Major contractor to the US govt., including the Dept. of Defense Involved in defense industry pricing scandals in 1980s o UTC was asked to voluntarily repay $40 million in excess profits Declined to repay the funds arguing they had done nothing wrong Founding member of Defense Industry Initiative in 1986 o Developed a detailed ethics education program o Goal was to increase level of self-regulation by defense contractors Now known for its global ethics & compliance program Why Were the Issues so Pervasive? • Lack of checks & balances w/in the defense industry o Widespread inefficiencies o Opportunity to engage in “fraud, waste, and abuse” • Reliance on self-regulation (Defense Industry Initiative) by contractors • Nature of military contract design o Fixed prices for main program of goods & services o Spare-parts prices negotiated later in contract life cycle o Motive & opportunity to recoup losses on main contract Compliance Programs and Global Ethics 1990 first code of ethics published o Included 5 major company commitments o Stressed personal accountability for ethical decision making 2003 UTC acquired Chubb o Chubb a British firm that specializes in security and fire systems Integration with Chubb • Chubb had not established any ethics & compliance programs o Employees will need education on UTC’s program & processes o Must convince Chubb employees the their value of ethics programs • Chubb has a decentralized organizational structure o History of hundreds of small acquisitions o Localized nature of security services • Chubb lacks a cohesive culture o 46,000 employees o High degree of cultural & geographical diversity o Low organizational tenure and loyalty • Problems o Where to start in the post-acquisition integration process o What steps should be taken to fully integrate Chubb into UTC's established global ethics & compliance program Organizational Structures UTC: o 7 business units and a standalone research center o Mechanistic structure High formalization High centralization High specialization o Centrally administered ethics and compliance program Chubb: o Formed through hundreds of acquisitions of small firms o Organic structure Low decentralization Low to moderate specialization Low to moderate formalization o No existing ethics programs o Lacks basic coordinating mechanisms like centralized computing system **See slide 7 for text exhibit** Challenges UTC faces Chubb lacks an existing command & control system o Hard to coordinate rollout of ethics program o Difficult to monitor program compliance o Gnazzo needs to build infrastructure from ground up Chubb lacks an existing ethics program o Gnazzo needs to convince Chubb’s employees of desirability of strong commitment to social responsibility o Must educate 46,000 employees on program content & processes Employees used to high degree of autonomy are likely to resist headquarters’ efforts to centralize business activities Structural Attributes of Chubb Specialization o Tasks assigned based on location, rather than security subtype or specialty Formalization o Lack of formal operating procedures o Each unit retains own rules and policies with minimal integration effort Centralization o Regional headquarters is distributed across 5 countries o 46k employees distributed across numerous sub-units in multiple countries o Formed through small acquisitions of hundreds of local companies o Low organizational commitment & tenure o Lack of centralized info system connecting satellites to main offices Changing Chubb’s Culture Shift from organic to mechanistic structure o Organizational chart o Centralize management functions Infrastructure (systems) development o Universal communication systems o Input controls Budgeting (resource allocation) Standard operation procedures o Output controls Incentives Reward/compensation systems Chubb’s current culture is weak o Lack of shared values or internalized norms o Easier to imprint UTC’s culture on Chubb o Retain valuable aspects of existing culture Ethics leadership starts at the top o Establish regular meetings with Chubb managers o Reinforce implementation of desired values and norms through reward systems o Replace executives who impede transition The need for “Walking the Walk” The firm’s vision, mission & values should guide organizational behavior at all levels o Leadership as role models Evidenced by strategic commitments, or actions that are o Costly o Difficult to reverse o Long term Shared Value Managers should focus on shared value as opposed to short-term financial performance o Shareholder value creation o Value creation for society Reestablish link between firm performance and social progress 3 strategic actions o Expand the firm’s customer base to bring in non-consumers such as those at the bottom of the pyramid o Expand the firm’s traditional internal firm value chains to include more nontraditional partners o Focus on creating new regional clusters **See slide 14-22 for Exhibits** Apple- post Steve Jobs Apple Timeline 1976 – Jobs and Wozniak started building computers in Jobs’s garage 1978 – Launched Apple II and held successful IPO 1981 – IBM entered the PC market 1983 – Jobs hired John Sculley from Pepsi to help run company 1984 – Apple introduced the Macintosh; launches new ad campaign 1985 – Jobs ousted from Apple; founded NeXT Inc. 1986 – Jobs founded Pixar Animation Studios 1990 – Microsoft released Windows 3.0 1993 – Michael Spindler became new Apple CEO 1996 –Gilbert Amelio replaced Spindler as Apple CEO Apple purchased NeXT for $429 million 1997 –Apple posted worst performance ever Steve Jobs returns as Apple CEO Apple launched “Think Different” ad campaign 1998 –Apple returned to profitability for the first time since 1993 Corporate Comeback-under Jobs Design o Refocused company on core product lines o Swapped to open-source operating system (Mac OS X) o Exchanged from PowerPC to Intel processors o Alliance with Microsoft to create Microsoft Office for the Macintosh o Pushed the limits of technology & design Production o Discontinued products such as Newton PDA o Outsourced manufacturing to Taiwan o Scaled-down distribution system Sales and marketing o Launched a new website o Branded Apple as appealing, hip alternative o Opened Apple retail stores Current Problems Succession planning o Internal vs. external o Relay vs. horserace o Transparency / fiduciary duty to shareholders Replacing an iconic founder o Steve Jobs passed away October 5, 2011 Sustaining a culture of innovation o High tolerance for failure and risk taking o “Stay hungry. Stay foolish.” o “Better to be a pirate than join the navy” o “Less of a job, more of a calling” o Transformational vs. Transactional leader The Apple Product Ecosystem iPod iTunes iTunes Store iPhone iPad Mac hardware products Mac App Store iCloud Software products and computer technologies Displays and peripherals Product support and services **See slide 6 for Apple’s New Sales by product** Business-Level Strategy of Apple • Differentiation – Creating products and services with unique features that provide increased customer value and enable the firm to charge a price premium o Innovative product design o Technological leadership o High quality and reliability o User friendly • Disruptive innovation • Enhances value by providing an integrated platform (ecosystem) for the purchase, use, and storage of multiple forms of digital content o Complements – iTunes, Mac App Store o Services – iCloud, AppleCare Apple’s Value Chain Research & development o New products are selected only if technologically superior o High tolerance for failure Human resource mngt o Attract top specialists in each field o Empower employees to experiment with new ideas Production o Sets standards and guidelines for products o Outsources most of manufacturing process Marketing & Sales o Change how customers behave rather than follow revealed preferences o Enhance the company’s reputation as a technological leader Service o Provide a unique customer experience o Ease of access & responsive service Apple’s SWOT STRENGTHS WEAKNESSES • Executive talent • Loss of Steve Jobs • Expert board of directors • Loss of key talent • Motivated work force • Dissent among top executives • Cult-like customer base • Corporate governance • Product pipeline • Patented operating system • Multiple patents • Apple ecosystem • Brand recognition • Strategic alliances • Strategic location • Retail outlets • Customization • Strong financials and cash reserves OPPORTUNITIES THREATS • E-textbooks • Antitrust investigations • Apple TV • Allegations of labor abuse in • Mobile advertising China • Pocket gaming • Competition (especially Google • Reinvent gadget and Microsoft) manufacturing? • Consumer market trends Criticisms of Apple’s Board Lack of independence o Small number of directors “hand-picked” by Jobs o Seldom exert their authority over Jobs on behalf of shareholders o Directors engaged in related transactions on compensation committee Poor director attendance at meetings Jobs’s lack of stock ownership Excessive CEO perquisites o Stock option grants o $90 million jet Named among the worst U.S. corporate boards by BusinessWeek in 2002 2012 Board Improvements Appointment of Arthur Levinson as an independent, outside chairman o Allows Timothy Cook (CEO) to focus on managing daily affairs Addition of a new board member (Iger), increasing the board size to eight members Addition of Ronald Sugar as a director in 2010 o Only board member to have formally served as CFO of a firm Valuable and unique financial and engineering expertise Recent addition of several new members helps to reduce board entrenchment Board Improvements that are still needed The board is still relatively small in size o An average range is 10–12 directors All but one director was appointed during the Jobs “era” o Strongly loyal to Cook, as Jobs’s protégée 3 directors (Jung, Drexler, and Iger) are the CEOs of firms that engage in business transactions w/ Apple o Technically outsiders according to federal requirements Lack of diversity o Consists largely of Caucasian male CEOs aged 51–71 years Board members receive stock grants as compensation o As opposed to purchasing equity w/ personal funds 5 directors are current CEOs, plus sit on multiple other boards Events that led up to Succession Jan 2009: Jobs took medical leave of absence liver transplant surgery o Apple made no public statement in spite of stock drop o September – Jobs made a public appearance to dispel concerns o Critics argued Jobs had a fiduciary responsibility to disclose the seriousness of his health problems Jan 2011: Jobs took another medical leave o February – Shareholders submitted a proposal to require Apple to “adopt and disclose a…succession planning policy” o Apple recommended voting against provision, which received only 30% of votes Aug 2011: Jobs’s resignation & Cook’s appointment were announced simultaneously In Defense of Apple Apple had a plan in place w/out releasing details o “The company takes succession planning seriously and the board has adopted a comprehensive process to ensure continuity and maintain the superior quality of its management team.” o Supported by swift execution in August 2011 o Cook had taken charge during each of Jobs’s previous medical leaves, easing into the position over a two-year period Rationale for secrecy o To protect confidential information from competitors o To prevent the poaching of Apple’s deep executive bench o Out of deference to Jobs as long as he was living and able to manage the company effectively Succession planning is not standard practice even among medium and large cap firms Apple’s Plan for Succession Relay succession o Timothy Cook had been internally promoted to COO o Groomed over the past two years to assume the position of CEO once Jobs stepped down Internal succession o The individual is familiar with the firm’s past history o She/he has established relationships with key stakeholders o She/he is known and trusted by the firm’s employees Signals strategic continuity o Internal CEOs w/ homogeneous top management teams tend to be associated with the highest level of strategic stability o Internal CEOs w/ heterogeneous top management teams tend to encourage strategic continuity with innovation Challenges Cook Faced Maintain Apple’s ability to innovate o Lessons from organizational theory and historical precedent Visionary companies often lose their momentum when charismatic leaders depart (e.g., Disney, Starbucks, Dell) Revolutionary organizations typically become less innovative and more bureaucratic when “obedient disciples” take over as leaders o Jobs and Cook have different skill sets Jobs had an extreme appreciation for beauty in design, intuitive insight into customer emotions, and a cult-like ability to motivate employees Cook is characterized as an “operational genius” – capable of running the company efficiently but lacking Jobs’s creative vision o Analyst forecast Apple will continue to perform well in the short term Apple of the future may not be the maverick it is today Avoid hero worship o A company’s devotion to an iconic founder can be both energizing and paralyzing o Learn from Disney’s example Walt Disney died in 1966 Well-meaning executives strove to preserve his vision by making decisions based on what Walt would have done Rigidly adhered to Disney’s formula for success and failed to adapt to the changing environment “They were just riding the coattails of what Walt pioneered, but they had stopped pioneering.” **See slide 22-27 for Exhibits and graphs**
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