The division manager had recently heard a lecture on management by objectives. His enthusiasm, kindled at that time, tended to grow the more
The division manager had recently heard a lecture on management by objectives. His enthusiasm, kindled at that time, tended to grow the more
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Principles of Management
ATTEMPT ANY FOUR CASE STUDY
Case I - McDonald’s: Serving Fast Food
Around the World
Ray Kroc opened the first McDonald’s
restaurant in 1955. He offered a limited
menu of high-quality, moderately-priced food served fast in spotless
surroundings. McDonald’s “QSC&V” (quality, service, cleanliness, and value)
was a hit. The chain expanded into every
state in the nation. By 1983 it had more
than 6000 restaurants in the United States and by 1995 it had more than 18,000
restaurants in 89 countries, located in six continents. In 1995 alone, the company built 2,400
restaurants. In 1967 McDonald’s opened its first restaurant outside the
United States, in Canada. Since then,
the international growth accelerated. In
1995, the “Big Six” countries that provide about 80 percent of the
international operating income are: Canada, Japan, Germany, Australia, France,
and England. In the same year, more that
7000 restaurants in 89 countries generated sales of $14 billion. Yet fast food
has barely touched many cultures. The opportunities
for expanding the market are great when one realizes that 99 percent of the
world population is not yet McDonald’s customers. For example, in China, with a population of
1.2 billion people, there are only 62 McDonald’s restaurants (1995). McDonald’s vision is to be the major player
in food services around the world. In
Europe, McDonald maintains a small percentage of restaurant sales but commands
a large share of the fast food market.
It took the company 14 years of planning before it opened a restaurant
in Moscow in 1990. But the planning paid
off. After the opening, people were
standing in line up to 2 hours for a hamburger.
It has been said that McDonald’s restaurant in Moscow attracts more visitors – on an average 27,000 daily
than Lenin’s mausoleum (about 9,000
people) which used to be the place to
see. The Beijing opening in 1982
attracted some 40,000 people to the largest (28,000 square-foot) restaurant at
a location where some 8, 00,000 pedestrians pass by every day. Food
is prepared in accordance with local laws.
For example, the menus in Arab countries comply with Islamic food
preparation laws. In 995, McDonald’s
opened its first kosher restaurant in Jerusalem where it does not serve dairy
products. The taste for fast food,
American style, is growing more rapidly abroad than at home. McDonald’s international
sales have been increasing by a large percentage every year. Every day, more than 33 million people eat at
McDonald’s around the world with 18 million of them in the United States. The
prices vary considerably around the world ranging from $5.20 in Switzerland to
$1.05 in China for the Big Mac that costs in the United States $2.32. The Economist magazine even devised a “Big
Mac Index” to estimate whether a currency is over or undervalued. Thus, the $1.05 Chinese Mac translates into
an implied Purchasing Power Parity of $3.88.
The inference is that the Chinese currency is undervalued while the
Swiss Franc is overvalued. Here are
other prices for the $2.32 U.S. Big Mac. Britain, $2.80, Denmark $4,92, France
$3.23, Japan $4.65, and Russia $1.62.
Its traditional menu has been surprisingly successful. People with diverse dining habits have
adopted burgers and fries whole heartedly.
Before McDonald’s introduced the Japanese to French fries, potatoes were
used in Japan only to make starch. The Germans
thought hamburgers were people from the city of Hamburg. Now, McDonald’s also serves chicken, sausage,
and salads. One of the items, a very
different product, is pizza. In Norway,
McDonald’s serves grilled salmon sandwich, in the Philippines pasta in a sauce
with frankfurter bits, and in Uruguay the hamburger is served with a poached
egg. Any new venture is risky and can be
either a very profitable addition or a costly experiment.
Despite the global operation, McDonald’s stays in close
contact with its customers who want good taste, fast and friendly service,
clean surroundings, and quality. To
attain quality, the so called Quality Assurance Centers (QACs) , are located in
the U.S., Europe, and Asia. In addition,
training plays an important part in serving the customers. Besides day-to-day coaching, Hamburger
Universities in the U.S., Germany, England, Japan, and Australia, teach the
skills in 22 languages with the aim of providing 100 percent customer satisfaction.
It is interesting that McDonald’s was one of the first restaurants in Europe to
welcome families with children. Not only
are children welcomed, but also in many restaurants they are also entertained
with crayons and paper , a playland, and the clown Ronald McDonald’s , who can
speak twenty languages. With the aging
population, McDonald’s takes aim at the adult market. With heavy advertising (it has been said that
McDonald’s will spend $200 million to promote the new burger) the company
introduced Arch Deluxe on a potato – flower bun with lettuce, onions, ketchup,
tomato slices, American cheese, grainy mustard and mayo sauce. Although McDonald’s considers the over – 50
adult burger a great success, a survey conducted five weeks after its introduction
showed mixed results.
McDonald’s golden arches promise the same basic menu and
QSC&V in every restaurant. Its
products, handling and cooking procedures and kitchen layouts are standardized
and strictly controlled. McDonald’s revoked the first French franchises because
the franchise failed to meet its standards for fast service and cleanliness,
even though their restaurants were highly profitable. This may have delayed its expansion in
france.
The restaurants are run by local manager and crews. Owners and managers attend the Hamburger
University near Chicago, or in other places around the world, to learn how to
operate a McDonald’s restaurant and maintain OSC&V. The main campus library and modern electronic
classrooms (which include simultaneous translation systems) are the envy of
many universities. When McDonald’s
opened in Moscow, a one – page advertisement resulted in 30,000 inquiries about
the jobs; 4000 people were interviewed, and some 300 were hired. The pay is about 50 percent higher than the
average Soviet salary.
McDonald’s ensures consistent precuts by controlling every
stage of the distribution. Regional
distribution centers purchase precuts and distribute them to individual
restaurants. The centers will buy from
local suppliers if the suppliers can meet detailed specifications. McDonald’s has had to make some concessions
to available products. For example, it is difficult to introduce the Idaho potato
in Europe.
McDonald’s uses essentially the same competitive strategy in
every country: Be first in a market, and establish its brand as rapidly as
possible by advertising very heavily.
New restaurants are opened with a bang.
So many people attended the opening of one Tokyo restaurants that the
police closed the street to vehicles.
The strategy has helped McDonald’s develop a strong market share in the
fast food market, even though its U.S. competitors and new local competitors
quickly enter the market.
The advertising campaigns are based on local themes and
reflect the different environments. In
Japan, where burgers are a snack, McDonald’s competes against
confectioneries and new “fast sushi”
restaurants. Many of the charitable
causes McDonald’s supports abroad have been recommended by the local
restaurants.
The business structures take a variety of forms. Sixty-six percent of the restaurants are
franchises. The development licenses are similar to franchising, but they do
not require McDonald’s investments. Joint ventures are used when the
understanding of local environment is critically important. The McDonald’s Corporation operates about 21
percent of the restaurants. McDonald’s
has been willing to relinquish he most control to its Far Eastern operations,
where many restaurants are joint ventures with local entrepreneurs, who own 50
percent or more of the restaurant.
European and South American restaurants are generally
company-operated or franchised (although there are many affiliates – joint
ventures – in France). Like the U.S.
franchises, restaurants abroad are allowed to experiment with their menus. In Japan, hamburgers are smaller because they
are considered a snack. The Quarter
Pounder didn”t make much sense to people
on a metric system, so it is called a Double Burger. Some German restaurants serve beer; some
French restaurants serve wine. Some Far
Eastern McDonald’s restaurants offer
oriental noodles. In Canada, the menu
includes cheese, vegetables, pepperoni, and deluxe pizza; but these new items
must not disrupt existing operations.
Despite its success, McDonald’s faces tough competitors such as Burger King, Wendy’s , Kentucky Fried
Chicken, and now also Pizza Hut with its pizza.
Moreover, fast food in reheatable containers is now also sold in supermarkets,
delicatessens (a store selling foods already prepared or requiring little
preparation for serving) and convenience stores, and even gas stations. McDonald’s has done very well, with a great
percentage of profits coming now from international operations. For example,
McDonald’s dominates the Japanese market with 1,860 outlets (halt the Japanese
market) in 1996 compared to only 43 Burger King restaurants. However, the British food conglomerate Grand
Metropolitan PLC that owns Burger King has an aggressive strategy for Asia. Although McDonald’s is in a very favourable
competitive position at this time, can this success continue ?
Questions
:
1. What opportunities and threats did McDonald’s face
? How did it handle them
? What alternatives could it have chosen ?
2. Before
McDonald’s entered the European market, few people believed that fast food could be successful in Europe. Why do
you think McDonald’s has succeeded ?
What strategies did it follow ? How did these differ from its strategies
in Asia ?
3. What
is McDonald’s basic philosophy ? How does it enforce this philosophy and adapt to different
environments ?
4. Should
McDonald’s expand its menu ? If you say no, then why not ? If you say yes, what kinds of precuts
should it add ?
5. Why is McDonald’s successful in many
countries around the world ?
Case No. :2
Developing Verifiable Goals
The division manager had recently heard
a lecture on management by objectives.
His enthusiasm, kindled at that time, tended to grow the more the
thought about it. He finally decided to
introduce the concept and see what headway he could make at his next staff
meeting. He recounted the theoretical developments in this technique,
cited the advantages to the division of its application, and asked his
subordinates to think about adopting it. It was not as easy as everyone had
thought. At the next meeting, several
questions were raised. “Do you have division goals assigned by the president to
you for next year ?” the finance manager
wanted to know. “No, I do not,”
the division manager replied. “I have been waiting for the president’s office
to tell me what is expected, but they act as if they will do nothing about the
matter.” “What is the division to do, then?” the manager of production asked,
rather hoping that no action would be indicted. “I intend to list my expectations for the
division,” the division manager said. “There is not much mystery about
them. I expect $30 million in sales; a
profit on sales before taxes of 8 percent; a return on investment of 15
percent; an ongoing program in effect by June 30, with specific characteristics
I will list later, to develop our own future managers; the completion of
development work on our XZ model by the end of the year; and stabilization of
employee turnover at 5 percent.’’ The
staff was stunned that their superior had thought through to these verifiable
objectives and stated them with such clarity and assurance. They were also
surprised about his sincerity in wanting to achieve them. During the next month I want each of
you to translate these objectives into verifiable goals for your own functions.
Naturally they will be different for finance, marketing, production,
engineering, and administration. However you state them, I will expect them to
add up to the realization of the division goals.’’
Questions
:
1.
Can a division manager develop verifiable goals, or objectives, when the
president has not assigned them to him or her? How? What king of information or
help do you believe is important for the division manager to have from
headquarters?
2.
Was the division manager setting goals in the best way? What would you have
done?
Case No. :3
The Daimler-Chrysler Merger: A New
World Order?
In May 1998, Daimler-Benz, the biggest
industrial firm in Europe and Chrysler, the third largest carmaker in the US
merged. The carefully planned merger seemed to be a ``strategic fit.’’ Chrysler
with its lower-priced cars, light trucks, pickups, and its successful minivans
appeared to complement Daimler’s luxury cars, commercial vehicles, and sport
utilities. There was little product-line overlap with the exception of the
Chrysler’s Jeep and Daimler’s Mercedes M-Class sport utility vehicles. The merger followed a trend of other
consolidations. General Motors owns 50 percent of Swedish Saab AB and has
subsidiaries Opel in Germany and Vaxuhall in England. Ford acquired British
Jaguar and Aston Martin. The German carmaker BMW acquired British Rover, and
Rolls Royce successfully sold its interests to Volkswagen and BMW. On the other
hand, the attempted merger of Volvo and Renault failed and Ford later acquired
Volvo. The Daimler-Chrysler cross-cultural merger has the advantage of both
CEO’s having international experience and knowledge of both German and American
cultures. Chrysler’s Robert Eaton had experience in restyling Opel cars in GM’s
European operation. Mr. Lutz, the co-chair at Chrysler, speaks fluent German,
English, French, and Italian, and has past work experience with BMW, GM, and
Ford. Daimler’s CEO Juergen Schrempp worked in the US with Euclid Inc. and has
experience in South Africa giving him a global perspective.
Background
Lee lacocca, the colorful
Chrysler Chairman left Ford for Chrysler because of a clash with Henry Ford II in 1978. He is credited with saving
Chrysler from bankruptcy in 1979/1980, when he negotiated a loan guaranty from
the US government. Iacocca also led Chrysler’s CEO who negotiated the 1998
merger with Daimler, replaced Iacocca in 1992. At
the time of the merger, Daimler was selling fewer vehicles than Chrysler, but
had higher revenues. Daimler’s 300,000
employees worldwide produced 715,000 cars and 417,000 trucks and commercial
vehicles in 1997. The company was also
in the business of airplanes, trains, and helicopters, and two thirds of its
revenue came from outside Germany. So, why would Daimler in Stuttgart go to
Chrysler in Detroit? The companies had complementary product lines and Chrysler
saw the merger as an opportunity to over come some of the European trade
barriers; but the primary reasons for mergers in the auto industry are
technology (high fixed costs) and overcapacity. Only those companies with
economies of scale can survive. Mr. Park, the President of Hyundai Motor
Company stated that the production lines in Korea operate at about 50 percent
of capacity in 1998. The auto industry could produce about 1/3 more cars. It
has been predicted that only six or seven major carmakers will be able to
survive in the next century. This makes merger more of a competitive necessity
than a competitive or strategic advantage.
Daimler
+ Chrysler = New Car Company
In the late 1980s and the early
1990s, the Japanese made great strides in the auto industry through efficient
production and high quality. Now the German carmaker changes the car industry
with the Daimler-Chrysler merger in which the former having 53 percent
ownership and the latter the rest. The new car company is now the fifth largest
in the world and could become the volume producer in the whole product line
range.
The respective strengths are that Daimler is known for its
luxury cars and its innovation in small cars (A-Class, Smart Car). Chrysler, on
the other hand, has an average profit per vehicle that is the highest among the
Big 3 (GM, Ford, and Chrysler) in Detroit, thanks to the high margins on
minivans and Jeeps. Chrysler is also known for its highly skilled management
and efficient production. Low cost and simplicity (e.g. Neon model) are other
hallmarks of Chrysler.
Juergen
Schrempp – A Shake-Up Artist?
Besides arranging for the
Daimler-Chrysler merger, Juergen Schrempp initiated many changes in the German
operation. When he took office, he felt that the company was without purpose
and direction. Consequently, he divested AEF and reduced the number of
businesses from 35 to 23. His emphasis on shareholder value is counter to
traditional German business culture. Schrempp models his managerial style after General Electric CEO
Jack Welch. Welch believes the GE should be No. 1 or No. 2 (or have a plan
aimed at getting there) in a given market or business, or the company should
get out of this market.
Yet, Schrempp faces many challenges. In the next century,
Mercedes will face tough competition from the Japanese Lexus, infinity, and
Acura as well as BMW and Ford’s Jagur. Germany’s labor cost is the highest in
the world and it requires 60 to 80 hours to build a Mercedes while to takes
only 20 labor hours to build a Lexus. Schrempp needs to cut costs and improve
productivity in order to survive. To remain competitive in a global market with
fewer, but larger automakers, Daimler-Chrysler has to grow and introduce new
models. At the Frankfurt Auto Show in 1999, the company announced that it would
invest $48 billion to introduce 64 new models in the next five years.
Strategy
Implementation: The Achilles’
Heed
of the Merger?
The formulation of the merger
strategy was carefully planned. The global perspectives of Schrempp and Eaton
as well as the product line indicate a fit. Yet, implementing a well conceived
strategy provides its own challenges. Some Chrysler designers and mangers saw
the merger more as a takeover by Daimler, and consequently left the firm to
join GM and Ford. Mr. Eaton, who is the American moral booster, will soon
retire. While there is a mutual understanding of the country and corporate
culture on the highest organizational level, incorporating the different
cultures and managerial styles on lower levels may be more difficult.
German top managers may rely on the 50 page report for
discussion and decision making. Americans prefer one-to-one communication.
Below the board level, subordinates typically research an issue and present it
to their German boss, who usually accepts the recommendation. American managers
frequently accept the report and file it away, frustrating German subordinates.
Also, Chrysler designers are frustrated with not being involved in the design
of Mercedes cars. Although there are at this time two headquarters (Detroit and
Stuttgart), a top manager predicted that in the near future there would be only
one – in Germany. Both the Americans and
Germans can learn from each other. Germans need to write shorter reports, be
more flexible, reduce bureaucracy, and speed up managerial decision making.
American mangers, on the other hand, hope to learn from the Germans. As one
Chrysler employee said: ``One of the real benefits to us is instilling some
discipline that we know we needed but weren’t able to inflict on ourselves.’’
 |
| The division manager had recently heard a lecture on management by objectives. His enthusiasm, kindled at that time, tended to grow the more |
Questions
:
1. Evaluate the formulation of
the merger between Daimler and Chrysler.
Discuss the strategic fit and the different product lines.
2. Assess the international perspectives of
Eaton and Schrempp.
3. What are the difficulties in
merging the organizational cultures of the two companies?
4. What is the probability of success of failure of the merger? What other
mergers do you foresee in the car industry?
Case : 4 Re-engineering the Business Process at Procter & Gamble
Procter
& Gamble (P&G), a multinational corporation, known for its products
that include diapers, shampoo, soap, and tooth-paste, was committed to improve
value to the customer. Its products were sold through various chanels such as
grocery retailers, wholesalers, mass merchandisers, and club stores. The flow
of goods in the retail grocery channel was from the factory’s warehouse to the
distributor’s warehouses, to the stores where the grocery stores where
customers selected the merchandise from the shelves.
The
improvement-driven company was not satisfied with its performance and developed
a variety of programs to improve the service and efficiency of its operation.
One such program was the electronic data inter-change (EDI) that provided daily
information about shipments from the retail stores to P & G. the
installation of the system resulted in better service, reduced inventory
levels, and labor cost savings. Another approach, the continuous replenishment
program (CRP), provided additional benefits for P & G as well as its
customer retailers. Eventually, the total ordering system was redesigned with
the result in dramatic performance improvements.
The re-engineering efforts also required restructuring the
organization. P & G has been known for its brand management for more than
50 years. But in the late 1980s and early 1990s, the brand management approach
pioneered by the company in the 1930s required a rethinking and restructuring.
In a drive to improve efficiency and coordination, several brands were combined
with authority and responsibility given to category managers. Such as manager
would determine overall pricing and product policies. Moreover, the category
managers were given the authority to delete weak brands and thus avoid
conflicts between similar brands. The category managers were also held
responsible for profits of a product categories for all stores. The switch to
category management required not only new skills, but also a new attitude.
Questions
:
1. The
re-engineering efforts focused on the business process system. Do you think
other processes, such as the human system, or other managerial policies need to
be considered in a process redesign?
2. What
do you think was the reaction of the brand managers, who may have worked under
the old system for many years, when the category
management structure was installed?
3. As
a consultant, would you have recommended a top-down or bottom-up approach, or both, to process redesign and organizational change? What are the
advantages and disadvantages of each approach?
Case No. : 5 Managing the Hewlett
Packard Way
William
R. Hewlett and David Packard are two organizational leaders who demonstrated a
unique managerial style. They began their operation in a one-car garage in 1939
with $538 and eventually built a very successful company that now produces more
than 10,000 products, such as computers, peripheral equipment, test and
measuring instruments, and handheld calculators. Perhaps even better known than
its products is the distinct managerial style preached and practiced at
Hewlett-Packard (HP). It is known as the HP Way. ``What is the HP Way? I feel that in
general terms it is the policies and actions that flow from the belief that men
and women want to do a good job, a creative job, and that if they are provided
the proper environment they will do so.’’ Bill Hewlett, HP CoFounder
The values of the founders – who withdrew from active
management in 1978 – still permeate the organization. The HP Way emphasizes
honesty, a strong belief in the value of people, and customer satisfaction. The
managerial style also emphasizes an open-door policy, which promotes team
effort. Informality in personal relationships is illustrated by the use of
first names. Management by objectives is supplemented by what is known as
managing by wandering around. By strolling through the organization, top
managers keep in touch with what is really going on in the company.
This informal organizational climate does not mean that the
organization structure has not changed. Indeed, the organizational changes in
the 1980s in response to environmental changes were quite painful. However,
these changes resulted in extraordinary company growth during the 1980s.
Questions:
1. Is
the Hewlett – Packard way of managing creating a climate in which employees are
motivated to contribute to the aims of the organization? What is unique about
the HP Way?
2. Would the HP managerial style work in any
organization? Why, or why not? What
are the conditions for such a style to work?
Case No.: 6 Quality as the Key Success Factor
In Winning the Global Car War
Massachusetts
institute of Technology (MIT) conducted an extensive study of the global car
industry that compared operations at General Motors, Toyota, and the joint
venture between GM and Toyota, the New United Motor Manufacturing Inc. (NUMMI)
plaint in Fremont, California. The result of the study should raise some very
disturbing questions about the quality and productivity of American operations,
namely:
·
Why did GM’s Framingham plant require 31 hours
to assemble a car when the Toyota plant only required 16 hours- or roughly half
the time?
·
Why did the GM plant average 135 defects per car
when Toyota had only 45 defects – or about one-third the number?
·
Why did GM require almost twice as much assembly
space as the Toyota facility?
·
Why did GM require to a two-week parts inventory
when Toyota only needed a two-hour supply of parts for its assembly line? As
one might suspect, the cost of maintaining a large parts inventory inflates
product costs.
Obviously GM did not fare well in the direct comparison to Toyota,
but there are also signs of encouragement in the MIT study. Although American
auto makers had fallen behind their foreign rivals, they have taken active
steps to improve product quality and respond to customer wants. These companies
have not been defeated; rather they have been revitalized by the competition.
GM joined forces with Toyota to create the NUMMI plant in
order to improve the quality and efficiency of its manufacturing operations.
The old GM plant in Fremont, California, was one of the car maker’s worst
performing facilities before the NUMMI operation was initiated. As a result of
the joint venture, assembly time has been greatly reduced and quality, measured
in terms of total number of defects per car, has equaled the performance of Toyota
in Japan. Although assembly space is still relatively high by Japanese
standards, NUMMI’s inventories have been reduced from two weeks to just two
days. In short, the solution to many of GM’s production problems could be
traced to a need of eliminating waste, focusing on value-added process, and
enforcing more stringent quality controls. In
some ways, the European car industry is even in a less competitive position
than U.S. companies. The quality, measured by assembly defects for 100
vehicles, is worse in Europe. European car manufacturers had 97 defects per 100
cars, compared to 82.3 by American firms operating in the United States.
Japanese companies operating in North America had only 65 such defects and
Japanese firms in Japan had only 60. In productivity, European car firms also
did poorly, requiring 36.3 hours to assemble a car compared with 25.1 hours of
U.S. companies in North America, 21.2 hours of Japanese car makers in North
America and only 16.8 hours of Japanese firms operating in Japan. Clearly, U.S.
and especially European firms need much improvement in productivity and quality
to be competitive in the global market.
Questions:
1. In the NUMMI joint venture,
what did Toyota gain? What were the benefits for General Motors?
2. As a consultant, what strategies would you
recommend for European carmakers to
improve their competitive position in the global car industry?
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