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Business Policy and Strategy / Strategic
Management
·
Section 1:
Caselets (30 Marks)
·
Read the Caselets
and Answer All the Questions
Caselet 1 (15 Marks):
In 2002, the South African brewing major South
African Brewing Company (SAB) acquired one of the leading brewing companies of
the US - Miller Brewing Company (MBC) - to form SABMiller, Plc (SABMiller). In
the 1970s, MBC was an aggressive player in the beer market but gradually lost
its edge by the late 1990s. Though it was one of the oldest and most renowned
brewing companies in the US, the period between 1990 and 2002 saw stagnation in
the sales of MBC, while its arch rival Anheuser-Busch (AB) went from strength
to strength. While MBC was finding it hard to increase its beer sales beyond 43
million barrels throughout that decade, AB increased its beer sales by around
27.9 million barrels between 1999 and 2002. MBC's new product launches, such as
'Miller Clear' beer also failed to make an impact in the market. Its
relationship with distributors also deteriorated. In 2002, MBC showed a 1.25
percent decline in revenues as compared to 2001.
SAB, which took over MBC, had a strong focus on
resourcefulness, integrity, drive, and excellence. The company maintained this
culture globally through a Performance Management (PM) system. Shortly after
the acquisition of MBC in 2002, the management at SABMiller realized that a lot
needed to be done to develop the performance culture within MBC in line with
the organization. Norman Adami (Adami), a veteran at SAB, was sent to MBC to
transform it.
Adami had joined SAB in 1975 and had held a
number of senior positions including Regional Director, Operations Director,
Managing Director and Chairman, at SAB. Before coming to MBC, Adami headed SAB
for nine years. On joining MBC, he was appalled by the "tolerance for
mediocrity" prevalent in the organization. The existing PM system was not
much of a challenge for employees. According to him, there was no
accountability and executives were rewarded regardless of their performance.
For instance in 2001 and 2002, when the group's performance was at its nadir,
55 percent and 61 percent of managers got a '4/5' or '5/5' rating respectively.
Targets were not taken seriously since underperformance was not punished.
People were activity-oriented rather than being result-oriented. They were
rewarded for completing activities and there was no correlation between
business performance, individual performance, and reward. That is why Adami
called the culture prevalent in MBC, “The Socialist Republic of Miller”.
Analysts felt that the MBC staff did not even have an adequate awareness about
the dynamics of the beer industry. Adami called it a "moribund"
culture. Though he felt that MBC was suffering from problems that were
fundamental and deep-rooted, he felt that things could be streamlined.
"We've got to break out of the cycle of a tolerance for mediocrity. It's
about instilling a will to win. We have people who are determined to win. We've
got to give them the space and create the environment for them to play the
game."
Mobilizing and invigorating the organization
and its people to instill the performance culture at MBC was one of the four
components of the turnaround plan. The other three were - building brands and
shaping the portfolio, getting sales and distribution right, and cutting costs
and raising productivity. As part of a restructuring program that took about
one year, "dead wood" (i.e. underperforming employees) was removed as
MBC transformed into a leaner organization and towards a performance-oriented
culture. But Adami did not try to implement the culture of SAB in MBC in toto.
According to Adami, bringing about a change in culture involved engaging the
hearts and minds of all the employees. It had to go beyond business and touch
the employees on a personal level, giving the employees a feeling that whatever
they were doing makes a difference. One of the first things Adami did was to
build a pub 'Fred's Pub', named after the company's founder Frederick Miller,
in MBC's Milwaukee headquarters. He was criticized for this move by some people
in the company. This "out of the box" move was undertaken in order to
instill a sense of pride in the employees and break down hierarchical barriers.
“We work for a brewing company. We need to be proud of what we stand for, of
what we do as a company. We need to be knowledgeable about what it is that we do,"
explained Adami.
Adami believed that opening the pub would be
one step in enabling change. In the pub, people from different departments and
different positions could talk to each other in an informal atmosphere. Adami
frequented the pub too, and he felt the pub helped the management to
"connect the dots" as it provided a way to stay in touch with the
realities of the business. It also helped as a channel to get the perspective
of employees on various issues and gave them access to the senior management.
Adami also decided to set up the Beer University. All the company's employees
had to undergo a one-day course. "It's a way to build a passion and let
people remember once again what we're all about - beer," said Virgis W.
Colbert, a director of MBC. The employees smelled hops and discovered for
themselves the difference between pilsner and ale. They were also reminded that
the yeast their company used in making beer descended directly from the batch
brought over from Germany in 1855.
In addition to this, Adami imported heavily
from the "SAB Ways" to put in place PM systems that would make
employees more accountable. Apart from realigning the organization, the
management moved toward top-down goal setting. A sense of urgency was
inculcated and people were evaluated against their goals. The performance
reviews also became tough, and performance was directly linked to pay. There
was an extensive drive to recruit the right kind of people for key jobs, and
selective training was provided to employees to build a talent pipeline for
succession planning and cover. Analysts
noted that after two years of rigorous implementation, there was a visible
change in MBC's culture and performance results. For the year ended March 31,
2005, for the first time since 1998, MBC posted growth in retail sales and
domestic shipments. In 2005, Miller Lite grew 3.2 percent, whereas the sales of
its main competitor Bud Light, from AB, were stagnant. The year 2005 also saw
the first profit decline for AB in a decade. AB's operating income in 2005 fell
by 22 percent, to US$2.6 billion.
After the three year "turnaround
phase," MBC entered the "step-up" phase. This involved
maintaining the growth of the Miller Lite brand as well as resurrecting other
brands in its portfolio such as Miller Genuine Draft. Analysts felt that the
situation was particularly tough as it faced cut-throat competition from the
wounded giant AB. Adami commented: “The turnaround phase was a tough period.
There was a lot of fear from people, trepidation. The next phase is just as
tough.” However, the management at SABMiller felt strongly that the people at
MBC would deliver the goods. According to the company, despite the challenges
posed by the competitive environment, MBC would continue its upward trend due
to its emerging performance culture. Analysts attributed this reversal of
fortunes to the arrival of Adami at MBC. They credited Adami with bringing
around this turnaround by changing the mind-set at MBC with his "able
challenger" approach. According to SABMiller, MBC had become a potential
challenger to AB, the market leader in the US, and used the phrase 'able
challenger' to describe the required competence and capability MBC had, to give
the market leader a tough fight, as to project itself as a strong contender.
Answer the following Questions:
A. Discuss the various factors responsible for poor performance of
MBC. (7 Marks)
B. Examine the steps taken by Adami to increase the competence and
capability at MBC to withstand in the competition. (8 Marks)
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Caselet 2 (15 Marks):
Nokia had always been at the forefront in
coming out with products that would cater to the needs of the Indian consumers.
While it focused on launching products for the urban market, it also focused on
serving the rural population. In 2002, Nokia announced its emerging market
strategy under which it planned to lower the initial costs of owning a mobile
phone in addition to lowering the operating costs. This was a bid to enable the
rural customers to reap the benefits of mobile telephony.
Taking its rural thrust forward, Nokia planned
to offer Value Added Services (VAS) through its mobile handsets to the rural
consumers. The company felt that adding content that would benefit the rural
consumers while offering the mobile handset at an affordable price would help
it further tap the rural market. In 2008, the company adopted a ground-up
approach and the Emerging Markets Services research team at Nokia did extensive
research on the lives of rural consumers, the services accessed by them, and
the areas that needed improvement. The research team found that the rural
markets faced several constraints related to infrastructure, distances, cost,
and the vast number of local languages. The team then concluded that the rural
consumers had little or no access to information on agriculture and education.
The farmers had to go to the markets several times to get to know about the
crops and the market prices of seeds, fertilizers, pesticides, etc. Moreover,
they had to deal with unscrupulous agents who often cheated them due to their
lack of knowledge and education. Students also suffered since they could not
gain the required educational material for their exams due to lack of resources
and the erratic Internet connections in villages. The company felt access to
the Internet would improve the lives of people living in such areas since they
could get the information they needed. However, the cost associated with buying
a PC posed a big challenge. The team said that most of the rural consumers they
interviewed expressed their desire to get such information on their mobile
phones.
Based on the recommendations made by research
team Nokia started the Nokia Life Tools (NLT) service. NLT offered rural
consumers access to a range of information in the areas of agriculture,
education, and entertainment. The pilot program was enabled on the Nokia 2600
and the Nokia 1680 models priced at Rs. 3,000 and Rs. 2,560 respectively and
was offered in three languages - Hindi, Marathi, and English. The program ran
for four months and the results were revealed in April 2009. The users using
the 'agriculture' module said that they could get to know about the market
rates that were being offered for their produce.
Buoyed by the success of the NLT pilot program,
Nokia launched the service commercially in Maharashtra, on June 12, 2009. The
company signed a Memorandum of Understanding (MOU) with the Maharashtra State
Agriculture Marketing Board (MSAMB). Under this agreement, the MSAMB sought to
offer knowledge on commodity prices from their 291 local mandis (market yards).
Nokia also collaborated with the Indian Government in conjunction with multiple
partners and NGOs to deliver information through its NLT service. The private
collaborators extending their support to Nokia comprised Idea Cellular Ltd.
(Idea Cellular), Reuters Market Light (RML), Syngenta India Limited (Syngenta),
Pearson Education India (Pearson), and OnMobile Global Ltd. (OnMobile). Idea
Cellular was the first GSM operator in India to collaborate with Nokia for the
NLT service.
The NLT services utilized an icon-based,
graphically rich user interface that consisted of tables and displayed
information concurrently in two languages. SMSs were used to deliver the
information easily. The NLT service was offered through two Nokia models - the
Nokia 2323 classic and the Nokia 2330 classic priced at Rs. 2,500 and Rs. 3,076
respectively, in three areas such as agriculture, education, and entertainment.
The user had to subscribe to each of the services in order to access the
information. After subscribing to the service, the user could use it
seamlessly. The NLT supported only three languages - Hindi, English, and
Marathi during the pilot program, but after its commercial roll-out, the
handsets supported other languages such as Punjabi, Gujarati, Bengali, Kannada,
Malayalam, Tamil, and Telugu as well.
Users could subscribe to the 'agriculture' module
through their Nokia handsets. The service offered two plans. The first plan was
a basic one that was available at a rate of Rs. 30 per month. Under this plan,
subscribers could get daily updates on the weather, market prices, information
related to seeds, fertilizers, pesticides, etc. In addition to the basic plan,
a premium plan was provided at a subscription rate of Rs. 60 per month. In this
plan, the subscriber could choose to get the closest market prices of three
crops selected by the subscriber, in addition to news, updates, and tips on
agriculture. The basic plan was to be made available throughout the country
while the premium plan was to be made available only in 10 states including
Maharashtra. RML was the exclusive provider for the content in the pilot
program and also continued to provide the content in the 'agriculture' module.
The 'education' module comprised three service
components - learning English with basic, intermediary, and advanced levels;
tips on exam preparation for state-boards, ICSE, and CBSE boards, and general
knowledge, through which the subscribers could get to know about the world
around them. The education services were offered at a subscription of Rs. 30
per month. In addition to the language learning lessons and general knowledge,
the students also received career guidance, tips on exam preparation, and exam
results. The content was offered through Pearson.
Through its 'entertainment' module, Nokia
enabled its subscribers to personalize their phones by tuning in to the latest
ring back and ring tones. People could also enjoy jokes, news, and cricket
scores, in addition to availing of the astrology service. The entertainment
services were offered at existing prices charged by Nokia throughout the
country that ranged from Rs. 6 per minute for every download to Rs. 30 for
every download of a ring tone. The content was aggregated and brought on the
mobile through OnMobile.
Analysts appreciated Nokia for its efforts to
serve the rural consumers. They lauded Nokia for launching VAS (which, till
then, had been mostly offered to the young urban customers) through its mobile
phone for the rural people. They said that the NLT service gave farmers an
opportunity to gather information relevant to the cropping cycles. They could
access information related to the weather that helped them to plan work that
depended on the weather conditions. They also said that the farmers could spend
their money wisely by getting to know information related to fertilizers,
pesticides, and seed, and that this would help them to improve their
productivity and increase their earnings.
Some industry experts pointed that with the
information on hand; the farmers could deal more effectively with the agents
besides saving on time and money as they did not have to go to the market to
get access to the latest rates. They also commended Nokia for its 'education'
module that sought to help students who aspired to learn English and gain
general knowledge.
One of the biggest challenges that Nokia faced
with its NLT service was in offering timely and accurate information to the
subscribers, according to experts. Some experts also felt that the growth of
this service would be limited since it was offered only in some areas such as
agriculture, education, and entertainment. They also opined that though the NLT
services sought to offer an array of benefits to the rural consumers, the
affordability of the handset still posed a significant challenge. Nokia,
however, maintained that it had launched low-cost handsets targeted at the
rural consumers. It added that it was considering entering into deals with
microfinance institutions to offer easy financing options to make the mobile
handsets affordable to the rural consumers.
Nokia, however, maintained that by launching
NLT, it aimed to overcome constraints related to information and to contribute
toward employee empowerment by enabling them to make informed decisions. It
also said that it planned to bridge the digital divide prevalent in emerging
markets through this service. Experts felt that Nokia's strategy of using VAS
to sell its handset sales would succeed in emerging markets, as these handsets
could serve as the main way to access the Internet in countries where most
people did not have access to PCs. However, they also felt that this strategy
was bound to fail in more developed countries where Internet usage was well
defined.
Answer the following Question:
A. Taking its rural thrust forward, Nokia
planned to offer Value Added Services (VAS) through its mobile handsets to the
rural consumers. Discuss various factors that motivated Nokia to offer such
services to the rural customers in India. (7 Marks)
B. Explain how the Nokia Life Tools (NLT)
service would benefit concerned stakeholders. What are the challenges that
Nokia faced with its NLT service? (8 Marks)
Section 2: Applied Theory (20 Marks)
Answer any One Question:
1. ‘According to Michael E. Porter, the five forces, namely, the
threat of new entrants, the bargaining power of buyers, the bargaining power of
suppliers, the rivalry among existing players and the threat of substitute
products, play a vital role in shaping the company’s future.’ In this context,
examine the various circumstances where the bargaining power of buyers and
suppliers is high.
(Or)
2. The general manager is an entrepreneur, strategist, leader and
chief implementer. Further, during the implementation of strategy, the general
manager presents an important source for clarification, guidance and mid-course
correction. In this regard, explain the strategic management responsibilities
of a general manager.
Dear students, get latest Solved assignments and case studies by
professionals.
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