Case Studies 1-6

Question 1

Lincoln Electric Background

Answer 1

products e.g. electrodes and welding wire.

• In 1950 it had 50 US competitors; by 2002 it had just 6. General Electric, Westinghouse & others withdrew from the market.
• Lincoln Electric model of production was based on ‘highly productive’ workforce:
• Employees paid piece-rates
• Layoffs are avoided through profit sharing scheme. Created incentives by which employees share in the success of the company. This resulted in employees choosing to:
• work fast & carefully (increasing hourly output of non- defective devices); &
• work for longer hours (including taking short lunchtimes)
• Attained the largest market share in the industry: 40% of US market share for electrodes & welding wire.

Question 2

Lincoln Electric: The Issue

Answer 2

• Globalize! In the 1990s, Lincoln Electric acquired manufacturing plants in Europe and Asia.
• Introduced the incentives mechanisms the had company developed in the US whereby employees share in the success of the firm (e.g. piece-rates).

Question 3

Lincoln Electric: The Result

Answer 3

The international expansion was not a success:

• Workplace culture e.g. (i) in France, typical workers work less than 30 hours per week; and (ii) group work culture rather than individual culture in China in the 1990s.
• Lincoln Electric lost it’s unique position – other firms expanded by globalising production. It followed the herd

Question 4

Procter and Gamble (P&G) Background:

Answer 4

• P & G have over 160 years experience making soaps and detergents, including work on:

Market research; and

Market testing.

• It found that in Europe washing machines have smaller capacity, longer running cycles and use lower heated water than in the US;

Question 5

Proctor and Gamble: Issue

Answer 5

How to enter the European Market

• Introduce a ‘Euro‐brand’ or develop brands that a specific to each European market?
• Answer depends on supply issues (production, distribution an marketing costs) and demand issues (how well‐defined’ individual country markets are).

Question 6

Proctor and Gamble: Result

Answer 6

Not succesful

Why?

• P & G was fully aware of the ‘monetary’ cost of the single country model of Anglo, Franco, Italo … detergent.
• But not fully aware of the ‘opportunity’ costs on not going down that path i.e. forgone sales revenue.

Lesson that P & G

• After an ‘economic’ cost / benefits was undertaken, adopted a country specific ‘subsidiary’ model of demand patterns.
• Each jurisdiction to design and market its own products

Question 7

Reviving John Deere: Issue:

Answer 7

• John Deere is an American corporation and one of the largest manufacturers of agricultural machinery with a history of over 170 years.
• When Bob Lane took wheel of a poor performing Deere in 2000, he quickly identified the problem: Spending too much money to make money.
• Factories tended to overproduce, churning out a steady flow of output no matter what the season or demand.

Question 8

John Deere: Solution

Answer 8

• Lane introduced a financial benchmark called “shareholder value added” (SVA). Division managers were charged 1% each month of the cost of assets and were required that at the end of the year their financial results exceed the charges.
• Managers are motivated to cut costs, Shareholder Value Added (SVA) is understood across the company. From 2003 to 2007, net income has doubled to more than $1.6 billion.

Question 9

Enron

Answer 9

• Enron was originally an energy pipeline company,
• butdevelopedproductsandaccountingmethodsthatenabled potential future profits to be booked in advance of realisation
• Over 3 weeks in 2001, Enron went bankrupt. Part of the problem was accountability for yet to be realised profits.
• Enron developed instruments that allowed products that

indicate a future value to be accounted for as current profit / assets (instead of using the conservative ‘agent model’)

• Reporting in business is very very important!

Question 10

Wallmart: P1

Answer 10

• Wal-Mart’ssearchforbarrierstoentrywere successful, with it’s market share rising from:

– 9% in 1987; to – 27% in 1995;

• It’ssuccesswaslinkedtoprogressivechanges: 1.Large scale distribution centres i.e. the ‘Big Box’

• Bit like Bunning’s warehouse
2.Electronic data interchange (EDI) with suppliers

• Managed inventory levels

3.‘Every day lower prices’
• Bit like Coles’ ‘prices are down’ campaign

Question 11

Walmart P2

Answer 11

Competing firms followed suit:

– Productivity (output per worker) in the firms of its competitors rose by 28% between 1995 and 1999:

Question: if competing firms are studying Wal-Mart’s techniques, how can Wal-Mart continue to make above normal economic profits?

Answer: it was not any one technique that was most important. Rather, it was the creation of the Wal-Mart brand, as a firm engaged in an ongoing and successful search for innovation, that was most important.

– The ‘brand’ effectively became a barrier to entry!
– How can you copy a reputation for ongoing innovation?