AEREN FOUNDATION’S Maharashtra Govt. Reg. No.: F-11724

SUBJECT: PRINCIPLE & PRACTICE OF MANAGEMENT

Marks: 80

CASE STUDY : 1

International Case : Carrefour — Which Way to Go?

Wal-Mart's biggest global competitor is the big French retailer Carretour, a firm that has hypermarkets, big stores offering a variety of goods. It has made large investments around the globe in Latin America and China. But not all is well as competitors taking market share its home market, for instance. There has been even speculation of a takeover by Wal-Mart or Tesco, an English chain. Mr. Barnard has been ousted after heading the company for 12 years; he was replaced by Jose Luis Durant who is of German-Spanish descent. Although the global expansion is cited by some as success, it may be even a big mistake. It withdrew from Japan and sold 29 hypermarkets in Mexico. Carrefour also had problems competing with Tesco in Slovakia and the Czech Republic. In Germany, the company faced tough competition from Aldi and Lidle, two successful discounters. On the other hand, it bought stores in Poland, Italy, Turkey, and opened new stores in China, South Korea, and Columbia. Carrefour has become more careful in selecting markets. But. the company is eager to enter the Indian market, but found out in late 2006 that Wal-Mart will do so as well.

In France, where Carrefour is well established, the company made the big mistake in its pricing policy. It probably started with the 1999 merger with Promodes, the French discount chain. Carrefour confused the French clientele by losing its low-cost image; whether the image can be changed remains to be seen. Mr. Durant, the new CEO since 2005, embarked on the new strategy by offering 15 percent new products in its hypermarkets and 10 percent in its supermarkets. Moreover, he wants to employ more staff, extend the operating hours in certain hypermarkets, cutting prices, trying small stores, and pushing down decision making. Mr. Durant aims to stay only in countries where Carrefour is among the top retailers.

Questions: 1. How should Mr. Durant assess the opportunities in various countries around the world? 2. Should Carrefour adopt Wal-Mart's strategy of "low prices everyday"? What would be the advantage or disadvantage of such a strategy? 3. How could Carrefour differentiate itself from Wal-Mart? 4. Identify cultures in selected countries that need to be considered in order to be successful?

AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL

Introduction of the Case:

Abstract: Carrefour was the second largest retailer of consumer goods and groceries worldwide, after Wal-mart. The company pioneered the concept of hypermarket in their home country, France, as early as 1960’s.How-ever, towards late 1990’s; Carrefour saw a decline in their French hypermarkets owing to certain unfavor -able government regulations and competition from hard discount stores. Carrefour introduced a series of strategic initiatives in an effort to revamp the ailing French hypermarkets. As a result, French hypermar-kets started showing signs of recovery towards late 2004. The case discusses about the emergence and growth of hard discount stores in France. This case also provides scope for discussion of decline of Car-refour’s French hypermarkets and its revamp strategies.

Pedagogical Objectives:

The state of Hard discount stores in France

Impact of government regulations on French retail industry

Growth of Carrefour’s hypermarkets in France

Revamp strategies of Carrefour hypermarkets in France.

1. How should Mr. Durant assess the opportunities in various countries around the world?

Mr. Durant, the new CEO since 2005, embarked on the new strategy by offering 15 percent new products in its hypermarkets and 10 percent in its supermarkets. Moreover, he wants to employ more staff, extend the operating hours in certain hypermarkets, cutting prices, trying small stores, and pushing down decision making. Mr. Durant aims to stay only in countries where Carrefour is among the top retailers.

2. Should Carrefour adopt Wal-Mart's strategy of "low prices everyday"? What would be the advantage or disadvantage of such a strategy?

Yes Certainly they have to adopt the strategy of low pricing every day, In France, where Carrefour is well established, the company made the big mistake in its pricing policy. It probably started with the 1999 merger with Promodes, the French discount chain. Carrefour confused the French clientele by losing its low-cost image.

The new strategy which they want to implement discounts and cutting prices ,trying small stores certainly will help Carrefour to keep their competition in all over the world.

3. How could Carrefour differentiate itself from Wal-Mart?

Wal-Mart is more than just the world's largest retailer. It is an economic force, a cultural phenomenon and a lightning rod for controversy. It all started with a simple philosophy from founder Sam Walton: Offer shop-pers lower prices than they get anywhere else. That basic strategy has shaped Wal-Mart's culture and driven the company's growth.

Now that Wal-Mart is so huge, it has unprecedented power to shape labor markets globally and change the way entire industries operate. In this article, you will learn the key reasons that Wal-Mart has been able to

keep its prices low -- cutting-edge technology, a frugal corporate culture and a push to make suppliers sell merchandise at cheaper and cheaper prices. We'll also take a look at the scope of Wal-Mart's impact on the economy and the controversies surrounding Wal-Mart, as well as the future of the company.

With 12 million loyalty card-holders in France, but also 7.5 million in Spain, for example, Carrefour group stores have an excellent base from which to forge closer relationships with customers. As a multi-format retailer, Carrefour can offer solutions addressing a wide variety of shopping habits. In 2009, the Carrefour group is enhancing its knowledge of customers, with the aim of serving them better and improving its brand image. In stores, the Carrefour brand will be conveyed in a way that is closer to the customer and more emotionally involving. By being more competitive, the brand will again become a tool for winning customers, enhancing customer loyalty and distinguishing Carrefour from the pack. In towns and villages, as convergence accelerates, the Carrefour brand will provide its best stores to more customers. In this way, Carrefour will make customers want to come, and keep coming, to its stores, regardless of the format or product offering. By focusing on retailing, Carrefour will become customers' preferred retailer.

4. Identify cultures in selected countries that need to be considered in order to be successful?

Carrefour operates in 29 countries around the world. World population is rising, geographic distribution of populations is shifting, world population isaging rapidly, ethnic mixes in developed countries are changing rapidly, andaverage household incomes are increasing.

The demographic environment presents both opportunities and threats for Carrefour. Increases in population size and household incomes help toexpand the market in which Carrefour operates. However, changes in the geographic distribution of populations, due to technological advances incommunications, may cause difficulties for Carrefour in determining profitable locations for new storefront

SOCIO-CULTURAL

1.New markets had seen dramatic changes in consumer buying habits,coupled with high growth in per capita GNP,2.suburbanization, greater participation of women in the labor force, and a large increase in theownership of cars and refrigerators. 3.The continued growth of suburban communities abroad is another major sociocultural trend. 4.Asian customers still tended to shop daily at wet markets or “mom & pop”stores.5.Moreover, impulse buying was on the rise and replacing necessity purchasing.6.Shopping as a form of leisure was an increasing phenomenon.

CONCLUSIONCarrefour has positioned itself as an international leader in the retail industry.Their strategies have proven successful for a number of reasons. First, they have beenable to successfully transfer competencies to asso-ciates and managers across the globe.Also, they have been able to adapt to local cultures and consumer tastes as necessary. Insome cases, they have even managed to change consumer tastes and buying habits. Theyhave succeeded in entering new markets aggressively and gaining a large share of eachmar-ket. Carrefour has even been able to restructure when legalities made it necessary.The question remains, then, what should Carrefour do in the future. Carrefour should remain in the retail industry. It should con-tinue those practices that have provensuccessful and profitable in the past. Also, Carrefour should continue to leverage itsknowledge of international markets to continue its rapid expansion across the globe. Carrefour should, however, be wary of threats to its operations, and remain vigilant I exploring new ways to improve its products and services. Carrefour has come this far based on its ability to pioneer new retail concepts and should remember that this pioneering spirit is what will carry it into the future.

CASE STUDY : 2

International Case : Reengineering the Business Process at Procter & Gamble

Procter & Gamble (P&G), a multinational corporation known for products such as diapers, shampoo, soap, and toothpaste, was committed to improving value to the customer. Its products were sold through various channels, 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 distributors' warehouses before going to 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 its service and the efficiency of its operation. One such program was electronic data interchange, which provided daily information 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, provided additional benefits for P&G as well as for its retailer customers. Eventually, the entire ordering system was redesigned, with the result of dramatic performance improvements. The reengineering efforts also required restructuring of the organization. P&G had 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 rethinking and restructuring. In a drive to improve efficiency and coordination, several brands were combined with authority and responsibility given to category managers. Such a manager would determine overall pricing and product policies. Moreover, the category managers had the authority to withdraw weak brands, thus avoiding conflict between similar brands. They were also held responsible for the profit of the product category they were managing. The switch to category management required not only new skills but also a new attitude.

Questions: 1) The reengineering efforts of P&G 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 a bottom-up approach, or both, to process redesign and organizational change?4) What are the advantages and disadvantages of each approach.

Introduction of the Case:

Abstract: Business process re-engineering (BPR) began as a private sector technique to help organizations fundamen-tally rethink how they do their work in order to dramatically improve customer service, cut operational, and become world-class competitors. A key stimulus for re-engineering has been the continuing development and deployment of sophisticated information systems and networks. Leading organizations are becoming bolder in using this technology to support innovative business processes, rather than refining current ways of doing work.

Business Process Re-engineering (BPR) is basically the fundamental re-thinking and radical re-design, made

to an organization's existing resources. It is more than just business improvising.

Procter & Gamble (P&G), a multinational corporation known for products such as diapers, shampoo, soap, and toothpaste, was committed to improving value to the customer. Its products were sold through various channels, 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 distributors' warehouses before going to the grocery stores where customers selected the merchandise from the shelves.

1) The reengineering efforts of P&G 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?

The reengineering efforts also required restructuring of the organization. P&G had 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 rethinking and restructuring. In a drive to improve efficiency and coordination, several brands were combined with authority and responsibility given to category managers. Such a manager would determine overall pricing and product policies. Moreover, the category managers had the authority to withdraw weak brands, thus avoiding conflict between similar brands. They were also held responsible for the profit of the product category they were managing. The switch to category management required not only new skills but also a new attitude.

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?

the category managers had the authority to withdraw weak brands, thus avoiding conflict between similar brands. They were also held responsible for the profit of the product category they were managing. The switch to category management required not only new skills but also a new attitude.

3) As a consultant, would you have recommended a top-down or a bottom-up approach, or both, to process redesign and organizational change?

A top-down approach (also known as stepwise design) is essentially the breaking down of a system to gain in-sight into its compositional sub-systems. In a top-down approach an overview of the system is formulated, specifying but not detailing any first-level subsystems. Each subsystem is then refined in yet greater detail, sometimes in many additional subsystem levels, until the entire specification is reduced to base elements. A top-down model is often specified with the assistance of "black boxes", these make it easier to manipulate. However, black boxes may fail to elucidate elementary mechanisms or be detailed enough to realistically vali-date the model.

A bottom-up approach is the piecing together of systems to give rise to grander systems, thus making the original systems sub-systems of the emergent system. Bottom-up processing is a type of information process-ing based on incoming data from the environment to form a perception. Information enters the eyes in one direction (input), and is then turned into an image by the brain that can be interpreted and recognized as a perception (output). In a bottom-up approach the individual base elements of the system are first specified in great detail. These elements are then linked together to form larger subsystems, which then in turn are linked, sometimes in many levels, until a complete top-level system is formed. This strategy often resembles a "seed" model, whereby the beginnings are small but eventually grow in complexity and completeness. However, "organic strategies" may result in a tangle of elements and subsystems, developed in isolation and subject to local optimization as opposed to meeting a global purpose.

As a Consultant I recommended a top-down approach.

4) What are the advantages and disadvantages of each approach?

Bottom-up approach Top-down approach

Summary

High deployment coverage in early phases

Earlier return on investment

High visibility of organizational changes

Higher impact to organization

Tactical, limited coverage

Delayed return on investment

Lower impact to overall organization

Higher deployment costs

Advantages

User and business awareness of the product. Benefits are realized in the early phases.

You can replace many manual processes with early automation.

You can implement password management for a large number of users.

You do not have to develop custom adapters in the early phases.

Your organization broadens identity manage-ment skills and understanding during the first phase.

Your organization realizes a focused use of re-sources from the individual managed applica-tion.

The first implementation becomes a showcase for the identity management solution.

When the phases are completed for the man-aged application, you have implemented a deeper, more mature implementation of the identity management solution.

Operation and maintenance resources are not initially impacted as severely as with the bot-tom-up approach.

Bottom-up approach Top-down approach

Tivoli Identity Manager is introduced to your business with less intrusion to your opera-tions.

Disadvantages

The organizational structure you establish might have to be changed in a later roll-out phase.

Because of the immediate changes to reposi-tory owners and the user population, the roll-out will have a higher impact earlier and re-quire greater cooperation.

This strategy is driven by the existing infra-structure instead of the business processes.

The solution provides limited coverage in the first phases.

A minimal percentage of user accounts are managed in the first phases.

You might have to develop custom adapters at an early stage.

The support and overall business will not real-ize the benefit of the solution as rapidly.

The implementation cost is likely to be higher.

CONCLUSION

A multi-billion dollar corporation like Procter and Gamble Corporation, which carries 300 brands and growing really has a strong grasp in re-engineering. Procter and Gamble Corporation's chief technology officer, G. Gil Cloyd, explains how a company which carries multiple brands has to contend with the "classic innovator's dilemma in most innovations fail, but companies that don't innovate die. His solution, innovating innovation..." (Teresko, 2004). Cloyd has helped a company like Procter and Gamble grow to $5.1 billion by the fiscal year of 2004. According to Cloyd's scorecard, he was able to raise the volume by 17%, the organic volume by 10%, sales are at $51.4 billion up by 19%, with organic sales up 8%, earnings are at $6.5 billion up 25% and share earnings up 25%. Procter and Gamble also has a free cash flow of $7.3 billion or 113% of earnings, dividends up 13% annually with a total shareholder return of 24%. Cloyd states: "The challenge we face is the competitive need for a very rapid pace of innovation. In the consumer products world, we estimate that the required pace of innovation has double in the last three years. Digital technology is very important in helping us to learn faster." (Teresko, 2004) G. Gil Cloyd also predicts, in the near future, "as much as 90% of P&G's R&D will be done in a virtual world with the remainder being physical validation of results and options."

CASE STUDY : 3

International Case : The Restructuring of Daimler-Benz

In a 1996 address to stockholders and friends of Daimler-Benz, CEO Jurgen Schrempp reviewed the position of the diversified company. He started by saying "1995 was a dramatic year in the history of Daimler-Benz." It was also a year that the board of management made a major break with the past.

Daimler-Benz, with more than 300,000 employees worldwide, consisted of four major groups: The first, by far the biggest and most successful group, was Mercedes-Benz with about 200,000 employees. It is best known for its passenger cars and commercial vehicles. The second was the AEG Daimler-Benz industries in the business of rail systems, microelectronics, heavy diesel engines, energy systems technology, and automation. The third was the Aerospace Group in the business of aircraft (the company has a more than one-third interest in the Airbus consortium), space systems, defense and civil systems, and propulsion systems. Finally, there was the Inter Services Group consisting of systemshaus, financial services, insurance brokerage, trading, marketing services, mobile communications services, and real estate management.

Daimler-Benz went through various development phases. From 1985 to 1990, it diversified into aerospace and electrical engineering. The aim was to become an integrated high-tech group. This diversification was further consolidated in the next phase that extended from 1990 to 1995. Under the leadership of Schrempp, the core business was redefined and the strategy refocused.

A 1995-96 portfolio review showed the need for refocusing on what the company could do best. Top management reevaluated its strategies and its core businesses based on economic criteria and the strategic fit of the various activities. It became clear that the company's strengths were in car manufacturing, the truck business, and the railroad sector. Mercedes Benz, for example, had a strong competitive position with its cars and trucks in Europe, North America, and Latin America. Vans were also relatively strong in Europe, and buses had a good competitive position in Latin America. Based on this analysis, the strategies for potential growth were through globalization and the development of new product segments.

In 1996, top management reassessed the company's position and its 1995 unsatisfactory results from its operations. It was discovered that the company was exposed to currency fluctuations that affected profitability. The company's image was also blurred because of the ventures into many different kinds of industries. The management board decided to cut its losses and chart a new direction for the company, with greater emphasis on profitability. The organization structure was tightened and certain businesses were divested. In fact, policy decision from an earlier period were reversed. The unprofitable AEG Group and the Dutch aircraft manufacturer Fokker did not receive financial support. Since both the Dutch government and Daimler-Benz withdrew support, Fokker filed for bankruptcy. Although these and other drastic decisions helped reduce the 1995 financial losses, the company's goal was not to emphasize maximizing short-term profitability but to work toward medium- and long-term profitability.

A number of other managerial decisions were made to achieve the ambitious goals of reducing costs and improving profitability. Employees close to the operations were empowered to make decisions necessary to carry out their tasks. The organization structure was simplified and decentralized so that organizational units could respond faster to environmental changes. Moreover, the new organization structure was designed to promote an entrepreneurial spirit. Control was exercised through a goal-driven, performance-based reward system. At the same time, the new structure was designed to promote cooperation. In 1997, the board of

management restructured and integrated the Mercedes-Benz Group into Daimler-Benz. Consequently, Mercedes-Benz's chief, Helmut Werner, who had been given credit for a successful model policy, resigned from the company.

Questions: 1) What is your assessment of Daimler-Benz's operations in many different fields? 2) Should the various groups operate autonomously? What kinds of activities should be centralized? 3) Daimler-Benz is best known for its Mercedes-Benz cars. Why do you think Daimler bought AEG in the first place and why did it venture into the Aerospace and Inter Services businesses? 4) Given the apparent mistakes in acquiring non-automotive businesses, what should Jurgen Schrempp do now?

CASE STUDY : 4

International Case : Global Car Industry

How the Lexus Was Born-and Continued Its Success in the United States, but will Lexus Succeed in Japan?

One of the best examples of global competition is in the car industry. As the Japanese gained market share in America, U.S. car makers required the Japanese to self-impose quotas on cars exported to the United States. This encouraged Japanese firms not only to establish their plants in the United States but also to build bigger and more luxurious cars to compete against the higher-priced U.S. cars- and the expensive European cars such as the Mercedes and the BMW.

One such Japanese car is the Lexus, by Toyota. This car is aimed at customers who would like to buy a Mercedes or BMW but cannot afford either. With a sticker price of $35,000, the Lexus is substantially less expensive than comparable European imports. In 1983, Toyota set out to develop the best car in the world-measured against the Mercedes and the BMW. The aim was to produce a quiet, comfortable, and safe car that could travel at 150 miles per hour and still avoid the gas guzzler tax imposed on cars getting less than 22.5 miles per gallon. This seemed to be an idea of conflicting goals: cars being fast seemed irreconcilable with cars being at the same time fuel-efficient. To meet these conflicting goals, each subsystem of the car had to be carefully scrutinized, improved whenever possible, and integrated with the total design. The first version of the 32-valve V-8 engine did not meet the fuel economy requirement. The engineers applied a problem-solving technique called "thoroughgoing countermeasures at the source." This means an attempt to improve every component until the design objectives are achieved. Not only the engine but also the transmission and other parts underwent close scrutiny to make the car meet U.S. fuel requirements.

Toyota's approach to achieving quality is different from that of German car manufacturers. The latter use relatively labor-intensive production processes. In contrast, Toyota's advanced manufacturing technology aims at high quality through automation requiring only a fraction of the work force used by German car makers. Indeed, this strategy, if successful, may be the secret weapon to gain market share in the luxury car market.

Questions: 1) Prepare a profile of the potential buyer of the Lexus.2) What should Mercedes and BMW do to counteract the Japanese threat in the United States and Europe?3) Why has the Lexus model been very successful in the U.S. but has not been marketed in Japan? (Suggestion: Review the frequency of repair records of luxury cars. Also talk to Lexus dealers or Lexus owners).4) Do you think Lexus will succeed in Japan? Why or why not?