Finova Group, a $14 billion commercial finance company, filed for Chapter 11 in early March 2001, in what was one of the largest U.S. bankruptcy filings of all time and the largest corporate bond default since the Great Depression. While in Chapter 11, Finova became the object of a heated bidding contest. Under the final accepted plan of reorganization, "Berkadia" (partnership of Leucadia National Corp. and value-investor Warren Buffet's Bershire Hathaway) sponsored a massive recapitalization of Finova, providing a secured loan of $6 billion to buy out the unsecured bank and bond creditors. In return, Berkadia received 51% of the reorganized company's common stock and control of the board of directors. No development of new business was planned. A number of entities represented in the case, however, believed that the company might have substantial going concern value and were concerned that Berkadia would acquire the company at an artificially low price. During the bankruptcy, a large fraction of Finova's debt and equity claims were purchased by so-called "vulture investors," who hoped to influence the outcome of the case.
The National Foundation for Teaching Entrepreneurship (NFTE), is a successful nonprofit poised on the verge of explosive growth. The senior management contracted with McKinsey consultants to help guide the process. The founders of NFTE brought it from a small program run out of their apartment to a $7 million enterprise operating in 43 states and 14 countries. Yet, it is a loose organization run by mission-driven entrepreneurs who manage to succeed by grit, charisma, and inspiring others. McKinsey is an icon of rational business planning; its advice is data driven and impassionate. For NFTE to go to the next step of its development, it must radically change the organization and introduce both structure and discipline to themselves and others. This will require a number of difficult choices and behavioral changes. Was this a good partnership? Can NFTE succeed in making the necessary changes? Is the plan appropriate for the organization?
Describes the primary elements and defining characteristics of a company's business model from the perspective of an entrepreneur. Introduces several analytic techniques and provides illustrative examples of business models to support the analytic framework presented.
E-consulting began as a specialized consulting service in the late 1990s. In January 2000, more than 100 firms were characterized as e-consultants. By December 2001, more than 50% of these firms had disappeared. This case tracks the rapid rise and sharp decline of e-consulting.
Examines the founding and evolution of a for-profit microlending organization in Bolivia. Explores the mechanics of microlending, nonprofit and for-profit approaches to serving the informal sector, and how the industry evolves over a 15-year period.
Space Data Corp. plans to partner with the U.S. National Weather Service to place transceivers on weather balloons and thereby create a national mobile communications network. The company is in the late development stages and is planning to launch a regional test that will demonstrate its ability to provide paging and messaging. It intends to sell its service to existing mobile carriers, such as Skytel and Verizon, rather than directly to end users. This case illustrates how Space Data has applied flexible business processes throughout its initial market research and technology development to create a system that can make optimal use of its limited resources and respond rapidly to changing conditions. As the case concludes, the executive team at Space Data faces three opportunities, each with very different costs and benefits for the company. It can proceed with a regional test of paging and messaging as planned, leap forward to develop a more complex but potentially more lucrative voice service (forgoing a regional test), or make a transition to the small but financially stable telemetry market. Includes color exhibits.
Explores the motivation for businesses to be concerned with the global AIDS epidemic. The formation of the council serves as an example of how business leaders are building a network of companies to develop an effective business response to AIDS-both through workforce programs and by harnessing commercial strengths to develop effective AIDS programs. Examines the difficult choices that the leadership of the council must make in expanding the organization. Provides a backdrop for the organization by discussing the evolving international context surrounding AIDS and its treatment-highlighting the role of business, government, and civil society in the developments that occurred in 2000 and 2001. Also provides a brief profile of MTV, a member of the council that has made a major commitment to increasing youth awareness of AIDS.
This case describes the compensation and performance evaluations at an investment management company. The senior management team of Massachusetts Financial Services (MFS) Investment Management was contemplating an introduction of hedge funds at the firm, but many believed that typical hedge fund manager pay (20% of the upside) would harm the MFS culture, which glorified "star performance but not star egos." The case presents the MFS compensation philosophy and plan (including the plan's emphasis on subjective compensation), the types of people it attracted, the resulting culture, and how the senior management team approached the hedge funds question. It includes side discussion on firm-specific human capital.
Military metaphors are commonplace in business writing about strategy, but they are rarely used in the negotiation literature. This case takes the Marine Corps philosophy of warfighting and compares it with the tactics and techniques of effective negotiators. Some of the characteristics of war--such as friction, imperfect information and communication, fluidity, and disorder--are also parts of negotiations. Likewise, some of the techniques military strategists use, like exploiting gaps in the enemy's lines and using boldness and speed to surprise the enemy, can also work for negotiators. Most critically, however, this case applies the notion of complexity to both warfare and negotiation and introduces students to the ideas of continual adaptation and dynamic responses to changing environments.
Harry Rawlinson is managing director of Aqualisa, a major U.K. manufacturer of showers. He has just launched the most significant shower innovation in recent history: the Quartz shower. The shower provides significant improvements in terms of quality, cost, and ease of installation. In product testing, the Quartz shower received rave reviews from both consumers and plumbers alike. However, early sales of the Quartz have been disappointing. Rawlinson is now faced with some key decisions about whether to change his channel strategy, promotional strategy, and the overall positioning of the product in the context of his existing product line.
Mainstream marketing has become so obsessed with rigor, quantification, and scientific rectitude that it has lost sight of the importance of magic, mystery, and imagination. We need to restore the balance somewhat, and the way to do that is to take a look at the boy wizard who has captivated the hearts and minds of readers the world over--and turned marketing on its head. Close examination reveals that Harry Potter is more than a mere passing marketing fad. Harry is different because the books are as much about marketing as the outcome of marketing. They deal with marketing matters, they are full of marketing artifacts, they contain analyses of marketplace phenomena, and they provide insights into the contemporary marketing condition. The books refer to almost every element of the marketing mix, as well as aspects of buyer behavior, environmental conditions, and marketing research. Harry Potter unknowingly has the power to transform the modern marketing paradigm from the positivistic trappings of modern marketing into the magical, mysterious, imaginative substance of postmodern marketing.
Today's strange, new business world needs an augmented model of industry and market analysis that reflects recent developments in industry dynamics, such as globalization, entrepreneurship, technological advances, and the Internet. Here is such an updated model, built on and expanding the basic premises that underlie Michael Porter's Five Competitive Forces Model. Suggestions are offered for how managers can position their businesses for success in the current competitive environment. Competitive rivalry (the force with the greatest influence on ROI and risk) includes both substitute products and the threat of potential entrants, combined because they are so highly interrelated. The presence of durable barriers to imitation is the most powerful deterrent to destructive turbulence. Strategic positioning in competitive markets requires creating a market-focused organization, a new market space, and relationships with key customers and suppliers. Strategy must be conceived as a series of real options.
E-commerce for merchants and consumers is more than just establishing or visiting an attractive web site to conduct business over the Internet. For companies and consumers alike, conducting business in cyberspace entails not only the traditional risks of sales and contracting, but also a new set of risks related to the electronic environment. For entities of all sizes, important components of those risks involve such legal issues as jurisdiction, contract formation, contract validity, contract changes and errors, authentication and attribution, message integrity, and nonrepudiation. Becoming familiar with these issues can help avoid costly disputes in e-business.
This is an MIT Sloan Management Review article. In theory, trade promotions should benefit everyone involved. In practice, however, manufacturers and retailers often use trade promotions as weapons in a zero-sum game, and consumers are sometimes left out altogether. It need not be that way. Over the past three years, David Bell, an associate professor of marketing at the University of Pennsylvania's Wharton School, and Xavier Drèze, a visiting assistant professor of marketing at UCLA's Anderson School, have examined the theoretical and practical problems associated with trade promotions, and they explain how the right kind of deal can be created -- a transparent system that generates mutual trust and provides benefits to both manufacturers and retailers. The key is proper implementation of what is thus far a little understood tool: the pay-for-performance trade promotion, in which retailers get rewarded according to how much they sell, not how much they buy. The authors explain how the most accepted way of doing promotions today -- which rewards retailers for effective buying rather than effective marketing -- creates a variety of inefficiencies that drain resources from their intended purpose. Using a hypothetical case involving much-simplified mathematics, they go on to demonstrate how manufacturers can design pay-for-performance options that retailers can embrace. They also illustrate how one national beverage company made pay-for-performance deals work in practice. Finally, they offer practical advice to help senior managers rethink the elements of organizational culture that stand in the way of a more effective approach to trade promotions -- and, by extension, block better, more profitable relationships all along the channel.