Describes the process, components, and detailed action steps involved in using scenario planning in any organization. Provides detailed examples that use the process.
On May 24, 2005, Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., announced that MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway, would acquire the electric utility PacifiCorp. In Buffett's largest deal since 1998, and the 2nd largest of his entire career, MidAmerican would purchase PacifiCorp from its parent, Scottish Power plc, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock. The acquisition of PacifiCorp renewed public interest in its sponsor, Warren Buffett. In many ways, he was an anomaly. What were the key principles that guided Buffett? Could these be broadly applied in the 21st century, or were they unique to Buffett and his time? From an understanding of these principles, analysts hoped to illuminate the acquisition of PacifiCorp. What were Buffett's probable motives in the acquisition? What did Buffett's offer say about his valuation of PacifiCorp, and how would it compare with valuations for other regulated utilities? Would Berkshire's acquisition of PacifiCorp prove to be a success? How would Buffett define success?
Set in June 2004, this case invites the student to assess the financial performance of FedEx Corp. and United Parcel Service, Inc (UPS). The two firms have competed intensely for dominance of the overnight express package industry. This case is intended for use in an introductory discussion of corporate value creation and its sources. The case requires no numerical computations from the student; rather, the tasks for the student are to interpret the results and to reflect upon their implications.
This case serves as part of an introduction to estimating investors' required rates of return. It should follow one or two class sessions covering the techniques for estimating WACC. The numerical calculations required are light, although some of the subtleties about the use of risk-adjusted hurdle rates will require time for the novice student to absorb. The case is about the CFO of a telecommunications company who must respond to a corporate raider claiming that a major business segment of this company should be sold because it is not earning a satisfactory rate of return. The case examines the use of a single hurdle rate to evaluate all segments of the company versus a risk-adjusted hurdle-rate system. The tasks for the student are to resolve the debate, estimate the weighted-average costs of capital (WACC) for two business segments, and respond to the raider.
The case presents the student with financial ratios for eight pairs of unidentified companies and asks them to mate the description of the company with the financial profile derived from the ratios. The primary objective of this case is to introduce students to financial ratio analysis-in particular, the range of ratios and the insights each one affords. This case presumes that students have already been introduced to the definitions of various financial ratios through other readings or lectures. The structured exploration of pairs of companies within an industry affords a number of important insights into strategy and financial performance. First, the economics of individual industries account for significant variations in financial ratios because of differences in technologies, product characteristics, or competitive structures. Second, financial performance results from managerial choices: within industries, the wide variation in financial ratios is often a result of the differences in corporate strategy in marketing, operations, and finance. For those reasons, this case is a good springboard into subsequent classes, which deal with the interaction of strategy and financial performance.
In early 2002, an analyst, Tom Baumann, must propose terms for leasing one of his company's advanced factory-automation systems to a major customer. From the lessor's standpoint, the challenge is simply to design an annuity stream that yields a present value equal to, or greater than, the value of the asset being leased. Certain factors, however, serve to complicate the analysis. The tax exposure and debt rating of the customer are uncertain, leaving the analyst to estimate the impact of alternative lease terms under different tax and interest-rate assumptions. Also, the customer is considering leasing competing systems from companies in Germany and Japan; these competing proposals limit Primus's flexibility in tailoring its proposal. In short, the student's task is to design lease terms that exploit the lessee's tax and interest-rate exposure within constraints set by competitive terms.
In March 2005, CEO Michael Eskew has asked the Corporate Strategy Group to recommend changes to the strategic process to ensure it allows United Parcel Service (UPS) to continue to transform itself over the next several years. Describes the evolution of UPS's strategic process, with special attention on the company's use of scenario planning techniques, as well as other critical elements of the process: the development of the company charter, strategic planning, strategic decision making, and strategy implementation. Also discusses the roles of the various players in the process, focusing especially on the CEO and corporate strategy staff.
A young female manager must decide whether to terminate two poorly performing managers who work for her. Shows the practical and ethical issues involved in firing decisions.
Massachusetts General Hospital is considering selling its royalty interest in Enbrel, Amgen's blockbuster drug for the treatment of rheumatoid arthritis. In assessing whether to sell, and at what price, the hospital must determine its value to a potential buyer as well as its own value of the royalty income.
Illustrates the underlying forces that erode a company's competitive advantage and are instrumental in converting its success into failure. Focuses on Motorola's strategic evolution in China, and shows how, over time, divergences emerged between the company's competence and basis of competition, and between its strategy and action. Provides an opportunity to examine how Motorola should strategically re-position itself in China to attain sustained competitive advantage.
Paul Walsh, CEO of Diageo, must evaluate bids received in an auction of the Burger King restaurant unit. Describes how Diageo came to own Burger King, the attempts to turn the unit around, the strategic reasons for its sale, the auction process, and various bidders' tactics to gain advantage in the auction. Four bids with quite complex terms arrive by the auction deadline. Walsh is facing the task of ranking the bids and determining what enhancements to the inferior bids would make them equivalent to the first-ranked bid.
The highway logo signing program has existed for over 20 years. Since its inception, most motorists have become accustomed to relying on these blue signs to provide information on services available at each highway exit. However, there is little, if any, literature that examines the program as an advertising source and no formal literature that addresses the signing program from the perspective of the independent business owner. Provides service business owners with information about the highway logo signing program. Describes a five-step process that owners can follow to determine whether the venue is viable and the investment value added.
Companies spend enormous amounts of energy and capital creating value for customers, but less regard is given to capturing the value they have created. Segmentation based on buying behavior uncovers a tremendous differential in willingness to pay for subjective product attributes such as convenience, status, and quality. Purchase decisions are made through an assessment of a myriad of factors, balancing perceptions of value components against price in a subtle, complex, and often subconscious decision matrix. Customer-centric pricing requires the simultaneous and continuous assessment of product attributes, customer perceptions, and the circumstances of time and place by listening to customers' actions. It is a means of assuring that companies assess the value they create for customers and extract that value from the marketplace.
Coaching is a frequently cited, but less often effectively implemented, developmental tool for enhancing managerial performance at all levels. Identifies and explores the practices junior managers consider to be most critical for senior managers to employ when implementing coaching as a performance improvement practice. The research engaged 45 focus groups consisting of 225 middle managers from over 20 different U.S. organizations to explore the issue of managerial coaching and its implications for organizations and individual managers.
Culturally attuned and emotionally sensitive global leaders need to be developed: leaders who can respond to the particular foreign environments of different countries and different interpersonal work situations. Two emerging constructs are especially relevant to the development of successful global leaders: cultural and emotional intelligences. When considered under the traditional view of intelligence as measured by IQ, cultural and emotional intelligences provide a framework for better understanding cross-cultural leadership and help clarify possible adaptations to leadership development programs of multinational firms. Posits that emotional intelligence, analytical intelligence, and leadership behaviors are moderated by cultural intelligence in the formation of global leadership success.
As the field of employee branding has begun to unfold, more and more executives have become interested in how this process can help them achieve a competitive advantage for their organizations. Explains how employee branding works and how it can be utilized to position the organization in the minds of customers, employees, and other stakeholders. Presents a contextual analysis of its use as a source of sustainable competitive advantage at Southwest Airlines. Also, identifies key success factors.
Bausch & Lomb (B&L) was in a crisis situation when Ron Zarrella took the helm in late November 2001. Following the departure of the COO in 2000 and the CEO earlier in 2001, Bausch & Lomb had undergone six quarters of restructuring and had laid off 10% of its workforce. A company known for cutting-edge innovation and the ability to evolve to stay relevant to customer needs, B&L had become a company in turmoil. Revenue had been flat for the past several quarters, with margins slowly eroding due to lack of disciplined cost management. The company carried excess overhead from duplicate departments that remained as a result of two large acquisitions made in 1997. A patent infringement lawsuit against B&L's key contact lens product threatened the future revenue stream and B&L's stock had already dropped more than 50%. It was in this environment that the Americas sales region had begun a major reorganization. Zarrella felt that he had no choice but to be cautiously optimistic. The 'Stronger as One: One vision, One goal, One team' reorganization had been underway for several months, merging the region's four sales forces into one. Even though lackluster financial performance indicated the need for change, Zarrella wondered whether 'Stronger as One' would return B&L to its rightful position in the market, or whether such a large reorganization would create more problems than it solved.