Organizational Analysis: Success And Failure

1.0 Introduction: In a world of truly limited resources, a company that tries to compete in every market with no specific direction will soon squander its resources and fall behind its competitors. Sustainable Strategy’s central role is to provide the focus essential to successful organizations. In this paper, we will discuss in detail about why do some firms succeed and why do others have failed. To answer this, the paper proceeds as follows. At the beginning of this essay, we will discuss why companies are successful by looking from five different fortune 500 companies. After that, we will explore another five well-known multinational companies that have failed or to some extent un-successful over the last few years.

2.0 Successful Organizations 2.1 Dell’s Success Major reason for Dell’s high performance is the way it manages its supply chain to minimize its cost structure, in particular the costs of holding inventory, yet with the ability to built a computer to individual customer specification with in three days, (see fig-1 supply management and fig-2 for the final product handles and channel customization). Fig-1 Supply Chain Management Eliminating Middle Man

Source: Yen, M (2003), ‘Customize GIS Education with SCM Model’ Viewed at 10/7/2006, Available at http://gis.esri.com/library/userconf/proc03/p0253.pdf.

Fig-2 Dell’s Web Browser interface

Source: Kraemer, K.L, Dedrick, J and Yamashiro, S, (2000), ‘Re-ning and Extending the Business Model with Information Technology: Dell Computer Corporation, Viewed at 12/7/06 http://www.indiana.edu/~tisj/readers/full-text/16-kraemer.pdf

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Such practice (see fig-3), eliminates inventories for both raw materials and finish goods. It frees up capitals and improves products quality. It also resulted in greater customer satisfaction. Furthermore, it allows Dell the flexibility to adapt new technologies (Yen 2003). Fig-3 Refinement of the dell strategy model

Source: Kraemer, K.L, Dedrick, J and Yamashiro, S, (2000), ‘Re-ning and Extending the Business Model with Information Technology: Dell Computer Corporation, Viewed at 12/7/06, http://www.indiana.edu/~tisj/readers/full-text/16.kraemer.pdf

Dell uses the internet to feed real-time information about order flow to its suppliers so they have the minute information about demand trend, along with volume expectations for upcoming months. Moreover, Dell suppliers use this information to adjust their own production schedules, manufacturing just enough components and shipping it by most appropriate so that they arrive just-in-time. Moreover, Dell’s use of the direct approach reportedly provides it with nearly a 6% cost advantage compared to indirect sellers (Kirkpatrick, 1997), Dell inventory turnover accounts for 55.5% compare to other rivalries (see fig-4) (further, see Appendix-1 comparing Dell Vs Compaq). Fig-4 Dell Inventory Turnover

Source: Kraemer, K.L, Dedrick, J and Yamashiro, S, (2000), ‘Re-ning and Extending the Business Model with Information Technology: Dell Computer Corporation, Viewed at 12/7/06 http://www.indiana.edu/~tisj/readers/full-text/16kraemer.pdf

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Dell launches a price war strategy. Bypassing middlemen to deliver PCs cheaper than any of its rivals, with a far-flung supply chain knitted together so tightly that it's like one electrical wire, humming 24/7, (Business week, 2003). Dell emphasizes on more personalize marketing strategy to penetrate market with its competitive pricing strategy also where convenience and value to time is an industry benchmarking. Further, employees are motivated with two reasons mainly, first, marketing department aren’t looking for hypothetical targets, largely because customers place orders online, eventually Dell’s have less HR-issues, low turnover, technology transfer to competitors through employees and other reason is that when customer place an order it becomes almost zero human error when taking orders from customers online than from telephonic conversation (effective delivery services).

2.2 Gillette’s turnaround. Recent years Gillette’s manages to execute impressive turnaround. A central element of that turnaround was the company’s disciplined planning to sustainable strategy, which has established powerful new levels of accountability and awareness. Furthermore Company’s new commitment to actionable strategy, “Total Brand Value” internally throughout the company, and externally to Wall Street. It was a strategy designed to align Gillette’s future with its recognized history as an innovator and value creator. Gillette was able to manage information and communication among all upstream parties in its value chain. Suppliers, distributors and retailers are all been efficiently and effectively connected through highly digitized RFID (Radio Frequency Identification) technology (see fig-1 and fig-2 product with RFID technology). Moreover, managers are responsible for contributing to an annual operating plan and a three-year strategic growth plan that sets performance expectations. Fig-1 Supply Chain Management with RFID Radio Frequency Identification technology • • • • • •

Strategies for reducing safety stocks Reduce spoilage in the supply chain Methods for tagging and tracking metal parts Share supply chain data securely with partners Strategies for improving cold chain management with RFID sensors Reduce shrinkage from theft and administrative error

Source: Supply chain management session, (2006), ‘The world’s RFID Authority’, Viewed at 09-07-06 .

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Fig-2 RFID Tag attach with Gillette product MACH 3

RFID Tag

Source: Supply chain management session, (2006), ‘The world’s RFID Authority’, Viewed at 09-07-06 http://www.rfidjournal.com/live2006/supply_chain_management.php.

Gillette quickly began moving in a new direction of the team members. Performance-based compensation arrangements were introduced, rewarding results instead of effort. Communication and collaboration became essential to groups striving to meet new performance targets. “As a result, cross-functional teams and groups were established, Managers discuss the objectives and targets of their own groups, which cascade down to their staffs which also used in individual performance appraisals”. (High Performance Marketing, 2006) Cost reduction strategy in every stage along the supply chain. With its low cost leadership strategy through strong supplier and distribution network, a strong satellite system, advanced electronic technology and warehousing, Wal-Mart is able to offer low prices to its customers, thus, saving the customer’s money. And through this, Wal-Mart could build a strong relationship with its customers based on trust and at the same time reduce its operation costs by shortening the lead times (effective inventory management).

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2.3 Eastman Kodak secret to success Kodak is not just selling their still image films, Kodak have quite number of product lines

and service to offer (Product diversification), such as

digital images, printer cartridges, paper kits and innovative big sign boards, which Kodak sells globally. Further, Kodak’s quality goal and overall objective is to achieve Total Customer Satisfaction. This is accomplished by utilizing appropriate process improvement techniques (e.g. Zero Defects, Supplier Certification, Lean, Six Sigma, etc.) in a manner that delivers improved productivity and the optimal deployment of resources. Kodak achieves their objective through the Supplier Quality Process (SQP). Which utilizes a number of different elements to improve, measure, monitor. The flexible design of SQP allows it to be applied to the specifics of each Kodak / Supplier relationship. The improvements gained should benefit all suppliers’ customers

and eliminate unnecessary costs.

Furthermore, each supplier is expected to measure their performance in a way that is consistent with Kodak’s business needs, and they are responsible for driving continuous improvement within their operations. Effective quality improvement is hardly easy, but if SQP has been deployed well, the following results should occur for both Kodak and suppliers. • • • •

Defect trends will decrease and overall performance improve Number of supplier “corrective action” requests will decrease Productivity/Cost of Quality (COQ) savings will result Number of certified suppliers will increase Fig-1 Major Elements of the SQP Process

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Source: Eastman Kodak, (2006), ‘Kodak Online: Revised’, Viewed at 12/7/2006, Available at http://www.kodak.com/US/plugins/acrobat/en/corp/purchasing/revised_2006.pdf

As more people are worry about environmental conditions vis-à-vis, Kodak also show concerns over environment, Kodak begins its mass advertisement in 2005 and manifests their philosophy as environment friendly relating with ISO’s certification on their products, which Kodak also sees their CSR (Corporate social responsibility) as environment friendly. Kodak projected their societal marketing strategies, plays an important role towards their products as safe to use. Environmental delicacy and companys’ strategies towards it as waste management, to becoming environmental friendly Kodak products are more appreciated among existing as well as potential and target customers. Kodak Greenhouse Gas (GHG) emissions represent a waste so Kodak have to take action to reduce GHG emissions, (see fig-2). Fig-2 Kodak Safety Incident Rate

Source: Farris, D and Jim, C, (2006), ‘Good to Great: Why Some Companies Make the leap and others don’t’, Library Journal, Retrieved from proQuest.

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2.4 Exxon Mobile- Another Successful Company. Horizontal merger between Exxon and Mobil, result in 23% increased in market share, according to Fortune 500, ExxonMobil, stands at No1 position in 2006, further mergers are crucial components for the company’s survival and growth in the long term. ExxonMobil adopted a balanced scorecard strategy.

In general, however ExxonMobil

adopted the differentiation strategy with their operational efficiency. ExxonMobil sought to attract customers that are willing to pay additional premiums for their products and at the same time improving efficiency in the supply chain in order to reduce cost. Moreover, ExxonMobil has focused on its strengths on its core business research and development to ebusiness and venture capital activities. ExxonMobil, venture to a complete new strategy, apart from their core business such as gasoline related products. ExxonMobil encourages its customers to purchase goods from its convenience stores apart from filling gasoline in the ExxonMobil gas station. Second, with its superior buying experience, the company has also able to provide convenient and fast service, hygiene restrooms and friendly employees to its customers. This exceptional service has made the relationships with its customers to become more bonded than ever before. ExxonMobil focuses on “operational efficiency, margin improvement initiatives, and prudent capital management” (Raymond 2004). To achieve this, the company continues to advance its technologies, introducing marketing innovations, expanding the business lines and established markets in overseas, for example, for the refining process ExxonMobil has continuously improve health and safety procedures to reduce accidents. This focus strategy on controlling costs has helped the company to reduce costs, thus, becoming more efficient. And finally fourth, the success of the company is also derived from the effort and commitment of its employees. The ability and flexibility to continuously change in this volatile industry is a competitive advantage over the other companies. (See fig-1, ExxonMobil Market segmentation, on following page) vii

Fig-1 ExxonMobil Market Segmentation Road Warriors -16%: Generally higher-income, middle-aged men who drive 25,000 to 50,000 miles a year ... buy premium gasoline with a credit card ... purchase sandwiches and drinks from the convenience store ... will sometimes wash their cars at the carwash

True Blues -16%: Usually men and women with moderate to high incomes who are loyal to a brand and sometimes to a particular station... frequently buy premium gasoline and pay in cash

Generation F3- 27% : Fuel, Food and Fast: Upwardly mobile men and women-half under 25 years of age- who are constantly on the go ... drive a lot and snack heavily from the convenience store

Home bodies-27%: Usually housewives who shuttle their children around during the day and use whatever gasoline station is based in town or along their route of travel

Price Shoppers-20%: Generally aren't loyal to either a brand or a particular station, and rarely buy the premium line ... frequently on tight budgets.

Source: Kaplan and Norton, The Strategy Focused Organization, page 33

ExxonMobil Strengths ExxonMobil has delivered strong cash flows at the operating level, and has continued to do so. Operating profit is approximately three times that required for operational activity, further, approximately 30-40% of net earnings is normally paid out as dividend. Recently EMC heavy investment in recent years in enhancing the efficiency means that capital expenditure is likely to be modest over the years ahead. EMC employees are self motivated, because as company grows, workers see their carrier building and their growth, moreover EMC is given employees intrinsic motivated in terms of dividends as well as extrinsic motivations, in terms of recognition, such as certificates and recognition like Loyal Employee of the year award.

ExxonMobil Weaknesses. Since EMC is making huge investing in non-gasoline products, EMC has to keep company’s core competence intact, Further, ecological disaster, which spill thousands or gallon in Artic ocean, because of this EMC image hampered in the market place, to built the image, EMC should help clean the disasters areas, which still effected by EMC oil spill, consider as most worst ecological disaster in century. Furthermore compensatory program must be introduced and try to resolve this issue and get the certification of oil barges and buy more two hull oil tankers rather than one hull oil tanker .

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2.5 Pfizer Success. Pfizer offers an excellent example of how executives can recognize what their companies do well and use that understanding to build superior strategies. The key to success of Pfizer is their strong sales team and huge investment on R&D. Moreover, Pfizer sales force uses leading edge information systems and technology to track the perception histories of physicians and to respond with sales coverage that delivers the biggest bang for the sales effort. The company’s information system also allows top management to plan the expansion of the sales force, to track its performance, and to link that performance with compensation. Further, this strong sales capability is a major asset of Pfizer, won the company co-marketing rights for several major drugs produced by other companies like Glaxo SmithKlein. Furthermore, an aggressive investment in R&D, Pfizer hired many of industries most experienced and talented scientist by offering them attractive compensation and un-beatable opportunity to conduct leading edge research. ‘Zoloft’, Pfizer’s most lucrative mental drug in history. According to analyst ‘Zoloft’, accounted for 40% of the market share in antidepressant bazaar compare to 18% Eli Lilly’s ‘Prozac’. Despite the similarity between two products, Pfizer gained share from Eli Lilly in the marketplace. The main reason for this success seems to have been Pfizer’s aggressive marketing and sales strategy, which created an impression in the eyes of physicians that Zoloft is a safer drug. Moreover Company creates a value chain through distribution strategy to the customers because of easy availability of Zoloft. Moreover, Pfizer sales force also logged more “face time” with psychiatrists than Eli Lilly. The target market strategy was not just psychiatrists. Pfizer sales rep(s) also meet with general physicians to recommend the basic primary care if the patient cites with nausea, nervousness, anxiety, insomnia, and drowsiness. General Physicians are encouraged to prescribe Zoloft as antidepressants drug.

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Pfizer’s weaknesses and threats cont............ Although it seems all promising to Pfizer. However. there is one important issue that Pfizer needs to take into account, and this is the ability of Pfizer to translate its competencies on brick-and mortars to an online environment. This is crucial because this B2C online business could be another strong source of competitive advantage and a weapon to destroy its competitors through lowering the price strategies. From our observations, it is found that up till now Pfizer still has a poor website and online shoppers perceive inconvenience to purchase products due to the complex Pfizer design. Pfizer has yet needs to prove to public its ability to transfer its specialized knowledge on traditional physical world into virtual world in order to sustain its already strong competitive edge. The major threat to Pfizer is that companies who counterfeit the product like Zoloft and sell it, as if their own products and taking profits. Therefore, Pfizer have to broaden their distribution channels globally, in order to gain the market and awareness to the customers.

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3.0 Un-successful Organizations 3.1 Sun Microsystems •

Rank 211 loss $107.0 Million

The problems could be neatly summed up by saying, when the fish are jumping in the boat, sun focused strategy on building the biggest boat. Sun ended up with $7.5 billion in cash, (Corcoran, 2005). Pervasive quality problems and a real strategic disconnect with where the market was quietly heading in part because Sun Microsystems were much more interested in monetizing the high end customers than Sun is worrying about the adoption of the core software assets on the low end. Sun Microsystems focus strategy tends be product-oriented firm rather than customeroriented firm. The company has poor marketing practice and ignored the customer’s needs, and also, the overall quality of its operations of marketing the products, and business practices were relatively poor compared to the other firms such as Microsoft. Moreover the biggest customers of Sun have today are the customers that subscribed to Sun’s core hardware and software architectures a decade ago. Sun's overall strategy suggests that company focuses on their UltraSparc stations (Hardware), which eventually has no future. Company’s main revenue generator is there Java and J2ME (Java to micro edition, embedded software in 3rd and 4th generation mobile systems), and company is swapping and pouring the large sums into UltraSparc development in the past and is being forced to do so even now, but UltraSparc has been clinically dead for a long time now. It lags benchmarks and likely costs the company more than 50 percent of its R&D budget taking from J2ME. The prime reason that Sun Microsystems have not fully understood and embrace the TQM concept, They were looking for quick fix, whereas implementing a quality improvement program is a long-term commitment.

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Sun Microsystems Interoperability with x86 (Intel) Strategy.

Over the years Sun Microsystems has been extremely apprehensive of Linux operating systems, and x86 based servers. Sun did recognize cheap x86 (Intel, compatible and non Compatible hardware) as a threat long time ago, but the company didn't know what to do about it. Sun was afraid of entering the x 86 markets as the margins in the x 86 markets were not healthy, and such a move would have cannibalized its high-margin UltraSparc business. After the dotcom bubble burst, Sun made a number of bizarre moves with regards to the x86 markets, but these days Sun looks firmly committed to a game plan. Solaris x86 which Sun was once planning to discontinue has become central to the company's plans. Sun is cutting back on UltraSparc development, and is readying itself to pursue life as a major x86 server vendor. According to a report by The Register, Sun will be rolling-out a number of in-house engineered Opteron based servers (www.sun.com) and storage solutions in 2005. Another report by The Register claims that, Sun is planning to sell 414,000 Opteron based servers in 2007, and the company is aiming for a double-digit share of the x86 server market. Some of Sun's x86 gains will surely come at the expense of its high margin Sparc business so the company has to compensate for that loss. But, Sun can't expect to gain market share quickly if it doesn't price its x86 hardware competitively. Sun is faced with two conflicting goals in the x86 market, but the company has figured out a way to extract decent margins while pricing its x86 hardware competitively. Sun also intends to combat the Linux advantage by assuring that the money it puts in Solaris yields a competitive advantage in the form of clear technical superiority over the competition. Sun will also attempt to tightly integrate software and hardware development in order to quickly bring advanced functionality to the market. But, the real key to Sun's success will be volumes. If Sun manages to sell millions of servers, Sun Solaris operating system development costs will get dispersed over the large number of units shipped and become irrelevant. Moreover, Sun will be able to make money from add-on sales, and service/maintenance contracts. Also, Solaris operating system will displace Linux operating system as the open source operating system of choice, and this will allow Sun to steal IBM and HP's UNIX customers. If Sun's Opteron sales takeoff, the company will become less reliant on UltraSparc revenue and the incentive to keep wasting money on UltraSparc will diminish. xii

Sun has placed a very bold bet on x86, and the company will emerge highly profitable and competitive if it manages to execute its game plan effectively. The downside is that if the game plan fails so will Sun. In that case, Sun will get swamped by hardware and software development costs and quickly goes out of business.

3.2 Gateway falls short of their strategies. •

Rank 495 (2005), Exit from Fortune 500 (2006), loss $3,649.7 Millions

Gateway has attempted to revive itself by becoming a producer of a wide variety of consumer electronics products branded with the group's name. But PCs still make up the bulk of its sales Compare Dell’s and Apple’s highly disciplined innovation efforts to Gateway’s shootanything-that-moves approach. Gateway started as a process innovator, becoming, with Dell, a pioneer of direct distribution, but it also tried to be a product differentiator, maintaining relatively high-cost manufacturing plants, investing more than Dell in R&D, and launching expensive brand-advertising campaigns. It innovated aggressively on the retailing end as well, pioneering the exclusive stores that Apple would later (and more successfully) copy. It even tried to be a service innovator, pursuing a highly publicized “beyond the box” strategy involving the provision of various consulting services to small businesses. By trying to innovate everywhere, Gateway failed to build a strong competitive advantage. Company fail to leverage their brand name, they were investing every where, in electronic industry and missed their core competencies as PC maker, eventually they looses ground in market place, by clearly not understanding the behavior of consumer market. Moreover, Gateway complex website for selling Personal Computers is hard to understand and customizing it, company website is poorly segmented where advance and simple features are on the same HTML (hyper text machine language). Further, their value added advantages are next to zero, including customer support solution, in addition, Gateway’s, AMD (Athelon, Intel rival) 1.8Ghz notebook designs are exact imitation of exact Compaq V1000 Presario. When Gateway, was the market leader in the US, the company was not aggressively emphasized on competing with the other Japanese firms where at that time, the Japanese products were starting to enter the US market with low-priced and high-quality personal xiii

computers. The ignorance and the poor response of Gateway had cost the company to lose huge percentage of its market share in the US and worldwide. Gateway was unable to lower its costs and improve its brand image.

3.3 Alcatel failure Alcatel market share deteriorated, and this is partially due to the slow movement made by the company to shift from a wireless phone industry to digital technology. Other words from AMPS (Advanced Mobile Phone System), D-Amps (Digital-Advance Mobile phone systems) to GSM (Global system mobile system) technology. These problems were aggravated when analyst found that there is a high level of competition within the mobile industry. There is a risk of supplier threats, the industry was mature and growth was slow where in many cases manufacturers are consolidating. And at the same time, Motorola does not have the capitalization or expertise to compete effectively with its fierce rivals such as Nokia and Sony Ericsson.

The biggest setback of Alcatel was a fail M&A between lucent technology and Alcatel. Company managers was having a high expectations, experiencing Sony and Ericsson M&A. Moreover, the problems with the proposed merger was the duplication in the two companies' product lines and both companies had a lot of traditional products in their portfolio that overlapped significantly, and it would be a logistical nightmare to decide which ones they would retain. Moreover, The megamerger could also have raised some antitrust issues. This fail M&A between Alcatel cost $550 million liqudation. (Fyffe, 2001). On the other hand, Nokia which has a competitive advantage over Alcatel, through being a low cost company. Nokia achieved this through utilizing a small number of platforms to produce a wide range of phones (creating economies of scales) and managing its inventories more efficiently than its rivals like Alcatel. Furthermore, Alcatel Corporate strategy was hierarchal, which means more paper work, consuming time on, making manager frustrated on work, Alcatel starting to loosing their best talent headcounts in late 90’s resulting failure

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in company, now Alcatel have to adapt their strategies to be more focused on 3G mobile and 4G mobile system, in today’s customer needs in order to find a niche of the company.

3.4 Dec (Digital Equipment Corp) The root of competitive failures can be found in what he termed the Icarux paradox. (Miller, 1994). Miller identifies four major categories among the rising and falling companies, which he label • • • •

Craftsman Builders Pioneers Salesman

Dec original success was founded on the minicomputer, a cheaper, more flexible version of its mainframe. Company improved on their original mini computers until they could not be beat for quality. Company rank was 27th in fortune 500 and remains in for decade, until they turned a blind eye, DEC turned into an engineer monoculture, its engineers became idols, Components specification and design standards were all that senior managers understood. Furthermore, technological fine tuning became such an obsession that the needs of customers for smaller, more economical, user friendly computers were ignored. DEC’s personal computers, for example, bombed because they were out of touch with the needs of customers, and the company failed to respond to the threat to its core market presented by the rise of computer workstations and client-server architecture. Texas instrument was with the same icarux paradox, masterful engineers and turns those into rigidly controlled operations, Texas instrument’s technocratic cultures alienate customers with perfect but irrelevant offerings. Eventually, the demand of Texas instruments product was falling. xv

Bill Gates once said that, its not necessary that Microsoft Xp could be the best product, available but Microsoft business strategy was to put this Xp as user friendly and cost leadership, operating system as house hold of the world.

3.5 Enron failure Enron is a company that operates in the energy sector. Later it expanded its operations to Gas Bank, electricity sector, water, metal, broadband and newsprint. In 2002, the company used to be the number 5 of the top 500 fortunes companies but later on after facing an accounting scandal, the company started to collapse. Enron has transformed its company from being an old economy company focusing on hard assets to a new economy firm focusing on a strategy of creating new markets HFV (Hypothetical Future value). Enron’s strategy to differentiate in the market was through reducing physical assets, keeping key assets (peak demand generators) and developing a core competence of risk arbitraging. With its core competency on risk management, managing the risk of commodities through purchasing electricity at a fixed price with suppliers and then sell electricity to customers with the new price, Enron was able to increase its profits, some thing Enron called M2M (Marked to Market Accounting).

Now the question is how Enron has collapsed? The collapse of Enron was the largest bankruptcy in the US history. The stock’s price dramatically collapsed from $80 per share to 30 cent per share. The collapse was mainly due to the management’s fraudulent practices. Enron lied about its profits and when the deception was unfolded, investors and creditors pull back their financial resources, which finally cause the company to face bankruptcy. Over expansion and excessive borrowings have also contributed to the company’s eventual demise. The xvi

finances were a disaster, this happens because of poor management and due to intentional deception and fraud. Poor management, we referred this as a systemic corporate governance failure.

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