Introduction:
For the financial year ending January 31, 2003, retailing giant Wal-Mart reported revenues of $244. 5 billion, making it the world’s largest company.
The company topped Fortune’s list of the world’s largest companies for the second year in succession Wal-Mart to emerge such a dominant player in the retailing industry. Wal-Mart’s success story is a classic example of a company, which became successful by rigorously pursuing its core philosophy of cost leadership, right from the day it began operations in 1962. Wal-Mart was founded by an ambitious entrepreneur, Sam Walton (Walton), who figured out early that retailing was a volume-driven business, and his company could achieve success by offering consumers better value for their money.
Wal-Mart’s growth during the first two decades was propelled primarily by following the strategy of establishing discount stores in smaller towns and capturing significant market share. The company was able to foster its growth in the 1980s by making heavy investments in information technology (IT) to manage its supply chain and by expanding business in bigger metropolitan cities. In the late 1980s, when Wal-Mart felt that the discount stores business was maturing, it ventured into food retailing by introducing Supercenters. In the late 1990s, Wal-Mart launched exclusive groceries/drug stores known as “neighborhood markets” in the US.
Though Wal-Mart had achieved huge success over the decades, the company drew severe criticism from industry analysts for its strategies that aimed at killing competition. At the speed at which Wal-Mart was growing, analysts feared that the company would soon face an anti-trust suit for its monopolistic practices. Christopher Hoyt, president of Scottsdale, an Arizona-based supermarket store, Hoyt & Company, said, “The only thing that could stop Wal-Mart is if the government gets involved, just as it did with Microsoft.
Wal-Mart’s Aggressive Pricing:
On July 2, 1962, Samuel Moore Walton (Walton), a merchant with over 15 years of experience in retailing, set up his first discount store in Rogers, a small town in the state of Arkansas, US. The store During the initial years, Walton focused on establishing new stores in small towns, with an average population of 5,000. In his efforts to attract people from the rural areas to his stores, Walton introduced the concept of every day low prices (EDLP). EDLP promised Wal-Mart’s customers a wide variety of high quality, branded and unbranded products at the lowest possible price, offering better value for their money.
Wal-Mart’s advertisement describing EDLP said, “Because you work hard for every dollar, you deserve the lowest price we can offer every time you make a purchase. You deserve our Every Day Low Price. He always shared these savings with customers by charging them lower prices, thus giving them the maximum value for their money. Wal-Mart’s products were usually priced 20% lower than those of its competitors. Walton’s pricing strategy led to increased loyalty from price-conscious rural customers. It helped the company to generate more profits due to larger volumes.
Explaining his pricing strategy, Walton said, “By cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. In retailer language, you can lower your markup but earn more because of the increased volume. ” EDLP was extremely attractive to rural customers and emerged as the key contributor to Wal-Mart’s growth over the years. Offering products at EDLP, especially during its early years, when Wal-Mart was not an established retail player, was quite difficult.
The company aggressively followed a cost leadership strategy that involved developing economies of scale and making consistent efforts to reduce costs. The surplus generated was reinvested in building facilities of an efficient scale, purchasing modern business-related equipment and employing the latest technology. The reinvestments made by the company helped it to maintain its cost leadership position. From the start, Wal-Mart imposed a strict control on its overhead costs. The stores were set up in large buildings, while ensuring that the rent paid was minimal.
The company imposed an upper limit for its rent payment at $1. 00 per square foot during the late 1960s. Not much emphasis was laid on the interiors of the stores. The company did not invest on standardized ordering programs and on basic facilities to sort and replenish the stock.
Gujarat Ambuja (India) Abstract:
This case discusses in detail the manufacturing and logistics activities of Gujarat Ambuja Cement Limited (GACL), one of India’s leading cement manufacturing companies. The case describes how GACL has become the cost leader in the industry.
It outlines the innovative and unconventional ways used by GACL for productivity improvement, pollution control, better distribution and cost cutting and highlights the critical success factors.
Introduction:
GACL was established as Ambuja Cements Private Ltd. (ACPL) in 1981 by Narotam Satyanarayan Sekhsaria (Sekhsaria), a businessman from Gujarat in western India. Originally a cotton trader, Sekhsaria liked the cement business because of its stable demand, lack of substitutes and limited competition.
With the support of Gujarat Industrial Investment Corporation (GIIC), Sekhsaria and his two partners, Suresh Neotia and Vinod Neotia, set up APCL. Gujarat Ambuja Cement Ltd (GACL), which had grown tenfold during the late 1990s, was the third largest producer of cement in India in 2004 next only to Birla Groups (consisting of Grasim Cements and Larsen & Toubro Cements) and Associated Cement Companies (ACC) &. In 2003, GACL had a capacity of 12. 5 mn tonnes and generated revenue in excess of Rs. 2,500 crores. The company had posted a net profit of Rs 221. 73 crore for the year nded June 30, 2003. GACL was the lowest cost producer in the Indian cement industry. GACL’s quest for cost leadership had been driven by productivity improvement and cost cutting measures. The company had won various awards for management excellence, quality, and environment management. Ever since its inception, the company had believed in doing things in innovative and unconventional ways. GACL’s modern plants, large kilns, high degree of automation, low manpower costs, low power tariff and low fuel costs had helped it to become the cost leader in the industry.
GACL had cut energy costs by reducing the usage of coal through use of substitutes like crushed sugarcane. GACL operated most of its plants at above 100% capacity utilisation. The company had pioneered the use of ship transportation to cut freight costs and also established the necessary infrastructure like ports, freight and handling terminals. Low-cost funds had helped GACL to cut the cost of capital. The company’s engineers had picked up best practices during visits to overseas plants in countries like Japan and Australia.
GACL had also reduced pollution levels at its cement production plants and complied with the Swiss standards of 100 milligrams per cubic nanometer. Cement, being freight intensive industry, various initiatives had been taken up by GACL to streamline its logistics. Order Processing Systems involved the flow of information about the orders from generation to order fulfilment. Orders once received, had to be processed quickly and accurately. GACL had linked all the major offices through a Wide Area Network (WAN).
Electronic Data Exchange (EDE) and Material Resources Planning (MRP) systems facilitated timely and accurate processing of orders. | | FOCUS STRATEGY : CASE STUDY 1. PepsiCo (Global) ABSTRACT: US based PepsiCo conducted a major restructuring exercise in 1997-98 by spinning-off its restaurant and bottling business. The restructuring was aimed at achieving improved focus on the company’s core beverage (Pepsi-Cola) and snack food operations (Frito-Lay).
By successfully adopting the ‘focus’ strategy since 1997, PepsiCo has emerged as the second largest consumer packaged goods company (in terms of revenues) in the world. By acquiring leading beverages’ company like Tropicana products (July 1998), South Beach Beverage Company (October 2000) and Quaker Oats (December 2000), the company has significantly strengthened its competitive position in the beverages segment. “Our goal in taking these steps is to dramatically sharpen PepsiCo’s focus. Our restaurant business has tremendous financial strength and a very bright future.
However, given the distinctly different dynamics of restaurants and packaged goods, we believe all our businesses can better flourish with two separate and distinct managements and corporate structures. ” – Roger Enrico, Former CEO of PepsiCo, Commenting on the Spin-off Restaurant Business STRATEGIZING: • Restructuring • Acquisition • Spin-off PepsiCo was formed in 1965 by the merger of Pepsi-Cola and Frito-Lay (#1 maker of snack chips in the world). The company’s popular drink, Pepsi-Cola6 had been invented in 1898.
In a bid to generate faster growth for the company, PepsiCo diversified into the restaurant business through a series of takeovers. It purchased Pizza Hut in 1977, Taco Bell in 1978 and Kentucky Fried Chicken in 1986. Soon, PepsiCo emerged as a world leader in the restaurant business. In its efforts to sharpen focus on its core beverage (Pepsi-Cola), and snack food businesses(Frito-Lay), PepsiCo underwent a major restructuring by spinning-off its restaurant businesses as an independent publicly traded company. The spin-off was completed in October 1997.
In July 1998, PepsiCo acquired Tropicana, the world leader in the marketing and production of branded juices, in its efforts to strengthen its position in the non-carbonated beverages segment. Despite its restructuring efforts, analysts felt that PepsiCo still had a lot of distance to cover to catch up with its about a century old archrival, Coke. In 1998, PepsiCo accounted for 31. 4% of the US soft-drinks market as compared to Coca-Cola’s 44. 5%. In the same year, Coca Cola generated 63% of its sales as compared to PepsiCo’s 31% from its overseas operations.
In its attempt to catch up with Coke, PepsiCo took several initiatives throughout the late 1990s and early 2000s. One of the major initiatives undertaken to focus on its core businesses was hiving-off its bottling operations into a separate new company called Pepsi Bottling Group (PBG), in September 1998. In January 1999, PepsiCo sold its 65% equity stake in PBG to the public and raised $2. 3 bn in cash. PepsiCo’s restructuring efforts paid off handsomely as its operating profits rose from $2. 584 bn in the financial year 1998 to $3. 225 bn in the fiscal 2000.
The company made further attempts to strengthen its market position in the non-carbonated beverages segment. This was achieved through the acquisitions of South Beach Beverage Company (SBBC) in October 2000, and Quaker Oats, a leading food and drinks company in December 2000. JET AIRWAYS (India)
Abstract:
Naresh Goyal (Goyal), chairman of JA was the one-man show behind JA’s birth. The case gives an overview of Jet Airways’ success in the domestic airlines industry. The case talks about the performance of Jet Airways since its formation in 1992. Over the years, Jet Airways improved its market share significantly from 6. % in 1993-94 to 42% in 2000-01. Right from the start, Jet Airways focused more on customer service than anything else. It was because of its superior customer service that Jet Airways had become the most popular airlines in India. The case makes a point about the strategy adopted by Jet Airways. Jet Airways started its operations in India with leased aircrafts because buying an aircraft would have cost Jet Airways around $ 40-$ 50 whereas a monthly lease was as low as $ 0. 4 million. Jet Airways also started its operations with the new Boeing 737-300s and not the older Boeing 737-200s.
This was because the new aircrafts were fuel-efficient and cheaper to maintain. Jet Airways also had only one type of aircraft’the 737–in its fleet. This ensured that maintenance and flight crew training was simpler. Because of the above factors, Jet Airways’ aircraft utilisation and number of flights per day was more than that of Indian Airlines. Another reason for the success of Jet Airways was its lean structure. Compared to Indian Airlines’ 397 employees per aircraft, Jet Airways had only 163 employees per aircraft. The case also highlights the fact that Jet Airways was virtually the only private player in the aviation industry.
It did not face any competition from the other private player-Sahara Airlines. With more private players planning to enter the Indian sky, Jet Airways has to gear up for competition ahead. The company was also embroiled in a controversy regarding its ownership, with Naresh Goyal, chairman of Jet Airways claiming that he owns Jet Airways.
Flying High in the Indian Sky
By 2001, with revenues of $542. 18 million, Jet Airways (JA) had emerged as the most popular domestic airlines in India.
JA started its operations in 1993; the number of its passengers increased from 0. 63 million in 1993 to 5. 9 million in 2000-01. By 2001, when other private airlines such as Modiluft, East West, NEPC and Damania had stopped their operations, JA not only continued to survive, but had become a formidable competitor to India’s national domestic airlines—Indian Airlines (IA). JA seemed to be the lone challenger to IA with Sahara Airlines in the third position. JA’s market share increased to 42% in 2001 from 6. 6% in early 1990s. In 2001, JA ran 215 flights per day compared to IA’s 208. Unlike the loss making IA, JA is making profits. At the end of the first year, JA achieved average seat factor close to break-even level of 71%.
Thereafter it broke even and has been making profits ever since. In 2001, JA recorded profits of Rs 125 million compared to IA which recorded a loss of Rs 1. 77 billion. JA became a favorite with travelers because of its friendlier approach and new generation cleaner planes more importantly, seasoned air travelers were confident that if they have crucial appointments to keep in other cities, JA was reliable than IA.
JA’s on-time performance and schedules attracted business travelers who accounted for 80% of its customers. JA had a fleet of 33 planes in 2001, as against IA that had a 57 planes. But JA’s fleet was much younger and the average daily flying time of JA was greater than IA. Greater utilization meant higher revenues and a more efficient utilization.
Domestic Airline Industry:
In 2000-01, Indian Airlines, Jet Airways and Sahara Airlines were the major players in the Indian domestic market. Till the early 1990s, IA had a monopoly in the sector of capital assets.
However in 1993 the Government of India (GoI) under its open skies policy allowed private participation and 8 new airlines were allowed to commence operations. Of these, only two survived – Jet Airways and Sahara Airlines. In 2001, IA had a fleet strength of 57 aircrafts, JA had 33 and Sahara 9. In 2000, GoI announced that private sector participation would be a major thrust area in the airlines industry.
The Success Formula:
JA started its operations with leased aircrafts. The idea was to expand faster by using funds to lease more aircrafts than buying one or two.
A Boeing 737 could cost anywhere between $40 and $50 million, whereas a monthly lease could be as low as $. 4 million. The most crucial decision was the choice of aircraft. While Damania, East West and ModiLuft who also started their operations at the same time opted for the older Boeing 737-200s, JA chose newer 737-300s, whose lease costs were at least 40% higher. Four planes(about three years old) were leased from Ansett Airlines. Although the 737-300s were more expensive to lease they were more fuel efficient (consumed 8% less fuel) and were cheaper to maintain.
Goyal felt that the young fleet would help attract customers. Analysts felt that by having one type of aircraft-the 737-in its fleet, JA made the maintenance and flight crew training far simpler. Spares were common and inventories were lower as well.
Differentiation Strategy: Case Study 1. Samsung Electronics (Global) Abstract:
Samsung Electronics is a Korea-based consumer electronics company. The case describes Samsung’s journey from a company focused on manufacturing to one known for the excellence of its product design. It discusses how the company came to use design as a differentiator and for competitive advantage.
It describes the steps that Samsung took on the people, process, and system fronts to improve its design capabilities. The case also talks about Samsung’s design philosophy, and ends with a brief discussion on the use of design as a competitive advantage. “An enterprise’s most vital assets lie in its design and other creative capacities. I believe that the ultimate winners of the 21st century will be determined by these skills. ” – Kun-Hee Lee, chairman, Samsung Corp. , in 2006.
INTRODUCTION: In the 2006 IDEA (Industrial Design Excellence Awards) competition, Korea-based Samsung Electronics Co.
Ltd. (Samsung) won a gold (for a touch messenger) and two silver (for a portable digital projector and a digital presenter) awards. With these wins, Samsung held on to its number one position as the company that had won the most IDEAs in the last five years. Samsung had made the decision to adopt design as a source of competitive advantage in the 1990s. Earlier, the company’s products had been uninspiring and undifferentiated. In the early 1990s, the Group chairman, Kun-Hee Lee (Lee), initiated Samsung’s transformation from a low-end OEM6 into a world-class electronics company. Sharpening the company’s design skills was a significant part of the initiative. However, this required major changes in culture, processes, and systems within the company. The decade-long initiative proved to be successful and Samsung came to be perceived as a company with an exciting product portfolio. The IDEAs and numerous other awards that Samsung won in the 2000s reaffirmed the company’s newly-acquired design prowess. • With stylish products in its portfolio, the company was able to record higher sales and higher profits.
Interbrand7, a leading branding consultancy firm, named Samsung as one of the fastest growing brands in its 2005 brand survey. The top management attributed the company’s success to a great extent to its new design capabilities. BACKGROUND: The Samsung Group was founded by Byung-Chull Lee (Byung) in 1938, in Taegu, Korea, as an exporter of dried fish, vegetables, and fruits. In 1951, Samsung Moolsan, a holding company, was established, which later became Samsung Corp. In 1953, Cheil Sugar Manufacturing Co. was set up, which later became an independent company.
In 1958, Samsung acquired Ankuk Fire and Marine Insurance (later renamed Samsung Fire and Marine Insurance) and DongBang Life Insurance in 1963 (later renamed Samsung Life Insurance). In 1966, the Group founded Joong-Ang Development, an entertainment (theme parks) and services company, which was later renamed Samsung Everland. In 1969, Samsung Electronics Manufacturing Co. (SEMC) was incorporated. In the 1970s, the Samsung Group forayed into the shipbuilding, chemical, and petrochemical industries. In 1974, the Group8 acquired a 50% stake in Korea Semiconductor Co. , a joint venture between Korea Engineering & Manufacturing Co. nd Integrated Circuit International. SEMC started exporting its products in the 1970s. In 1978, the Group’s electronics exports crossed the 100 billion won mark. In February 1984, SEMC was renamed as Samsung Electronics. In the mid-1980s, the Samsung Group began to concentrate on R&D activities. Samsung’s journey toward design excellence started in 1993. That year, Lee reportedly visited an electronics store in Los Angeles, USA. He noticed, to his dismay, that the Samsung products on display looked unattractive, while the products of Sony and some other companies looked much more appealing.
He found too that the sales personnel at the store were themselves ignoring the Samsung products. Lee realized that Samsung was paying too much attention to volumes and the cost of production, while ignoring customer value. He recognized that in order to survive, Samsung would have to make high quality, exciting products. BRINGING CULTURAL CHANGES: Although Samsung had no problems in funding and creating the design infrastructure, it faced a more difficult task in convincing the rank and file at the company that design was necessary for survival and growth.
Most of the employees were more concerned about costs and volumes than design. “Samsung was a technology company whose management thinking came out of exporting rice,”said Bruce, “There was no design involved. It was all about keeping the price down and outselling the other guy. ” SYSTEMATIC AND PROCESS CHANGES: Samsung redesigned its systems and processes to improve the design delivery process. First, the company modified its product creation process. Samsung earlier was an engineering-driven company and there was very little interaction between the company’s engineers, marketers, and designers.
The designers only took orders from engineers and product planners. However, this arrangement was done away with, and designers began to enjoy as much, if not more, authority as engineers and marketers. Collaboration between different departments became a key aspect of new product development SUCCESSES: • Samsung had a string of design successes in the 2000s. For example, the Syncmaster series of LCD monitors was lauded for its simple design and went on to win several awards. • In the 2000s, LCD TVs and Plasma TVs were gaining in popularity, while the popularity of the much bulkier projection TVs was waning.
Therefore, Samsung’s design team started work on developing a slim projection TV based on digital light processing (DLP) technology. The result was the highly acclaimed HLP series of DLP TVs, which had the processing engine standing upright and functioning as a pedestal base. In September 2006, Samsung unveiled the Syncmaster 971P, an LCD monitor. The product was unique in the sense that it had a geometric shaped stand, unlike conventional LCD monitors . The company claimed that the S-Shaped stand gave the monitor additional stability. 2. Max New York Life (India) ABSTRACT:
In 1999, when the insurance sector was opened to private players in India, Max India Limited tied up with New York Life to form Max New York Life (MNYL) to provide individual and group life insurance solutions. In a short span of around 5 years, it established a wide distribution network with 28 offices and representatives across 21 cities in India. MNYL offered 13 products and 9 riders customized to over 400 combinations that provided a number of options to the customer. This case examines the strategy adpted by MNYL in order to strengthen its foothold in the insurance sector in India.
INTRODUCTION: MNYL mission, vision and values were all directed towards becoming the most admired and preferred Life insurance Company in India. They also aimed to be the first choice for employees as well as agents. In 2000, MNYL realized that to compete against LIC, the only large player in the life insurance segment, it had to build a huge network and implement a product differentiation strategy to gain customers. However, the tie up with New York life ensured that different options were given to the customer as against LIC products which were not differentiated. STRATEGIZING:
MNYL laid stress on training of agents, as personal relationships were the key to success in selling insurance. For this purpose, it took special measures to train agent advisors who were the primary source of distribution. In 2002, it had around 1900 agent advisors who underwent 152 hours of training before selling as against 100 hours stipulated by IRDA . These training programs were spread over 2 years for 500 hours and ensured upgradation of skills and knowledge. The training program covered consumer psychology, the financial markets, and development of selling skills, discipline and the right attitude in the agents.
These agents were groomed to become financial advisors to customers. To strengthen its distribution system further, in 2003, MNYL adopted alternative distribution channels viz. franchisee model, rural business, telemarketing, bancassurance and corporate alliances. It appointed ‘gram sahayaks’in some rural locales who were trained to identify and sell specialized insurance products. MNYL created product differentiation by giving “Whole Life “policies that offered customers the correct balance between protection and savings. They offered for the first time in India a free-look period i. . , a customer had 15 days period to weigh the various options offered by MNYL which helped him to take an informed decision. This standard was adopted by IRDA as the best practice to be emulated by all players in the Indian insurance market. They were also the first company to sell a policy with riders. For example, 5-Year Term Renewable and Convertible Policy had two riders attached to it viz. Personal accident benefit and Dread disease benefit, which could be attached at the time of purchase of policy or later, subject to certain conditions.
MNYL also offered a specialized rural policy provided term insurance for Rs 10,000 for a sum of Rs 100, which was affordable to that particular segment of society. MNYL offered cash bonus in May 2003 to its Whole Life policyholders, who joined before February 6, 2002. As a value added service, this bonus could be used in five different ways: accumulated with the company and earn interest, buy paid up additions to raise the death benefit of the base policy, offset against future payable premiums, taken in cash or buy an additional term cover for one year.
In 2003, MNYL realized that it needed a new workflow system, as the existing one was unable to meet the customer requirements efficiently. Therefore, it tied up with Newgen to supply business process management tools. These technological improvements helped to reduce the turnaround time for customer request by 45%, aided in immediate retrieval of information, and generated savings on paperwork and telephone costs. MNYL also fixed benchmarks on claim processing time, processing of complaints and customer satisfaction and monitored these regularly. All these measures served to enhance customer service levels in the company.
