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Spinouts rarely take off; most, in fact, fall into one or more of four traps that doom them from the start. Some companies spin out ventures that are too close to the core of their businesses, in effect selling off their crown jewels. Sometimes, a parent company uses the spinout primarily to pawn off debt or expenses or to quickly raise external capital for itself. Other times, a company may try to spin out an area of its business that lacks one or more of the critical legs of a successful company--a coherent business model, say, or a solid financial base. And in many cases, parent companies can't bring themselves to sever their ownership ties and give up control of their spinouts. R.J. Reynolds, the tobacco giant, managed to avoid these traps when it successfully spun out a most unlikely venture--the pharmaceutical company Targacept. As the story illustrates, the problem with spinouts is similar to the problem of rich children. Their parents have the wherewithal to spoil them or shelter them or cling to them, but what they need is tough love and discipline--much the same discipline that characterizes successful start-ups. R.J. Reynolds recognized that it didn't know that much about the pharmaceutical business and couldn't merely try to spin out a small clone of itself. It had to treat the venture as if it were essentially starting from scratch, with a passionate entrepreneurial leader, a solid business plan, help from outside partners in the industry and, ultimately, substantial venture backing. That these lessons are less obvious to executives contemplating spinning out ventures closer to their core businesses may be why so many spinouts fail.

At the Star City Casino in Sydney, Australia, thousands of employees wear a huge variety of themed garments. The wardrobe department--which launders and reassembles each of those 80,000 outfits--may be the most prosaic of corporate functions, but it runs smoothly because of some very glitzy technology. It relies on radio frequency identification (RFID) chips--so-called smart tags--sewn into each garment. Tough enough to withstand repeated washing, the tags give each item an identity that can be tracked by wireless readers. The occasional gambler may still lose his shirt at Star City, but the employees don't. Object-to-object communication has become practical for a vast number of uses, enabling a "silent commerce" that requires no human interaction. Companies are rapidly adopting smart tags to reduce costs, enhance security, and help customers. But the technology is capable of even more: RFID tags working with sensors can report on whether products have been kept at a specified temperature, for example; as sensors improve, tags will be able to take action, such as triggering temperature controls. Object-to-object technology can have darker implications, primarily the potential compromise of privacy. When does helpfulness become obtrusiveness? For CEOs, the best response is first to consider the social environment in which the company is operating, then incorporate that sensitivity into the design and testing of new applications. As RFID systems advance, new business models, including entirely new ways of offering products and services, will emerge out of applications that, in simpler forms, are already in place. It's no exaggeration to say that a tiny tag may one day transform your own business. And that day may not be very far off.

Preparations for GPC's 75th anniversary are in full swing when the company archivist, David Fisher, uncovers a stash of letters from the founder to a wartime sweetheart. Amid Hud Parker's declarations of devotion is a page featuring formulas for GPC's first product, Parkelite. But it seems clear from the document that Hud Parker was not the miracle plastic's true inventor. David recalls that a lawsuit was brought against the company in 1938 by the father of Karl Gintz, claiming that his son, by then deceased, had been the sole inventor of Parkelite. Hud and Karl had been fellow chemistry students at Princeton, close friends, and army buddies. The lawsuit was decided in favor of GPC, but, David believes, this newly unearthed document would have allowed the Gintz family to prevail. Now Hap Parker, grandson of the founder and GPC's current CEO, must decide what to do. His grandfather's name doesn't deserve to be impugned: Even if Hud hadn't invented Parkelite, he built the company that brought it, and many innovations since, to market. Newland Lowell, GPC's lawyer, counsels Hap that it may not be necessary to divulge the discovery. He lays out a convincing argument that this evidence might not have changed the trial's outcome and he states that no heirs to Karl Gintz have been located. He speculates, plausibly, that the two fellow chemists might have been collaborating on the innovation all along. Still, concealment makes Hap uncomfortable: GPC's corporate culture has always embraced integrity. He's just decided to make the finding public when a chance encounter with three managers gives him pause again. Is it fair to GPC's 8,000 employees to destroy a myth--even if it is a myth--that informs a vibrant and fair-dealing culture? In R0206A and R0206Z, four commentators weigh in on this fictional case.

Preparations for GPC's 75th anniversary are in full swing when the company archivist, David Fisher, uncovers a stash of letters from the founder to a wartime sweetheart. Amid Hud Parker's declarations of devotion is a page featuring formulas for GPC's first product, Parkelite. But it seems clear from the document that Hud Parker was not the miracle plastic's true inventor. David recalls that a lawsuit was brought against the company in 1938 by the father of Karl Gintz, claiming that his son, by then deceased, had been the sole inventor of Parkelite. Hud and Karl had been fellow chemistry students at Princeton, close friends, and army buddies. The lawsuit was decided in favor of GPC, but, David believes, this newly unearthed document would have allowed the Gintz family to prevail. Now Hap Parker, grandson of the founder and GPC's current CEO, must decide what to do. His grandfather's name doesn't deserve to be impugned: Even if Hud hadn't invented Parkelite, he built the company that brought it, and many innovations since, to market. Newland Lowell, GPC's lawyer, counsels Hap that it may not be necessary to divulge the discovery. He lays out a convincing argument that this evidence might not have changed the trial's outcome and he states that no heirs to Karl Gintz have been located. He speculates, plausibly, that the two fellow chemists might have been collaborating on the innovation all along. Still, concealment makes Hap uncomfortable: GPC's corporate culture has always embraced integrity. He's just decided to make the finding public when a chance encounter with three managers gives him pause again. Is it fair to GPC's 8,000 employees to destroy a myth--even if it is a myth--that informs a vibrant and fair-dealing culture? In R0206A and R0206Z, four commentators weigh in on this fictional case.

Spreadsheet Supplement for case 202126

This case examines the changes in fund structures proposed by four venture capital firms in 2002: Accel Partners, Battery Ventures, Charles River Ventures, and Kleiner Perkins Caufield & Byers. The venture capital market has experienced a major downturn, and these funds are trying to address investor concerns.

Students play the role of Steve Papa, the CEO and founder of a venture-backed enterprise software company. In the challenging financing climate of the fall of 2001, he knows that two different groups are about to submit term sheets for his company's C-round. He is trying to decide what he should aim for in the ensuing negotiation. Presents the background of the company and the lengthy battle Steve fought just to get a term sheet. He has two months of cash left and a number of issues to consider, including a founding investor's request to change the terms of a previous round.

Students play the role of Hardy Smith, one of the founding investors of a venture-backed enterprise software company. In the challenging financing climate of the fall of 2001, he is trying to decide what terms to offer the company as an insider-funded C-round. Presents the background of the company and the lengthy struggle that Hardy and the CEO endured just to get a term sheet.

Students play the role of Charlie Yie, a venture capitalist considering an investment in a venture-backed enterprise software company. In the challenging financing climate of the Fall of 2001, he is trying to decide what terms to offer the company as an outside investor leading its C-round. Presents the background of the company and the lengthy struggle that existing investors and the CEO endured just to get a term sheet.

How does the new president of an IT division of a global company that originally sold cooking oil attract, develop, and retain key talent in the quick changing high tech business? The story illustrates the cultural challenges of transforming an Indian company to enhance its global effectiveness. The (A) case demonstrates some of the methods Wipro Technologies used to leverage difference in the workforce to create competitive advantage for the firm. The (B) case further describes some of Sudip Nandy's ideas for business growth. In the (C) case Nandy reviews more strategies and updates the business situation to late 2002. Wipro illustrates the importance of national culture and ethnicity issues to everything a large corporation does--including its own culture of origin, the cultures of its potential customers, and the cultures of its employees. The case lends itself well to unfold the Hofstede cultural model during the class.

This case is used to study cost-based decision analysis. It has incremental, variable, semivariable, and sunk costs in a classic cost-price-volume situation, set in a service business.

After opening the first Gordon Biersch brewery restaurant in July 1988 in Palo Alto, California, Dan Gordon and Dean Biersch successfully built Gordon Biersch into a $20 million company, with restaurants in five locations and a small retail beer business. By early 1995, they aimed to open 20 new restaurants throughout the United States by 1999 and to expand the brewing side of the business. To do so, they needed to grow at a much faster pace, which required additional funding and management expertise. Therefore, in November 1995, they accepted an investment of $11.2 million from the Fertitta family. In exchange, Dan and Dean gave the Fertittas majority control of the company. This case provides students with an update of what happened at the Gordon Biersch Brewing Co. after receiving funding from the Fertitta family in 1995 and up to 2002.

In September 2001, Houston-based Enron Corporation (Enron) was embroiled in a long-running dispute with various levels of government in India. The dispute involved the Dabhol Power Company (DPC), a 2,184 megawatt (MW) power project in the Indian state of Maharashtra. The dispute began in the mid 1990s. In April 1995, Enron began construction of a $2.8 billion power plant in the state of Maharashtra. In August 1995, the Maharashtrian government announced that the project was canceled based on the recommendations of a committee set up by the government to review the project. After the contract was renegotiated, construction resumed and Phase I was completed in 1999. In 2001, with Phase II of the project 95% complete, Enron announced that it would sell its DPC stake because of payment disputes with its sole buyer, the Maharashtra State Electricity Board (MSEB), and the failure of the Indian central government to honor its counter-guarantee.

Performance Indicator is a start-up that holds patents on the use of color-change technology to indicate when golf balls have been damaged by exposure to water. Because golfers put two to five used golf balls into play for every one new ball they buy, the used golf ball market cuts severely into the sales of manufacturers. Performance Indicator's technology would dramatically curtail the availability of used balls, doubling or tripling the size of the market for new golf balls. At the time of the case, the founders have been pursuing this idea full time for five years, but have yet to convince any manufacturers to license their technology.

In 2000, Samsung Electronics was the world's largest manufacturer of semiconductor memory chips. Its main line of business was the manufacture of DRAM chips, but worldwide demand had plummeted. Moreover, Intel, the world's largest producer of microprocessors, had formed an alliance with Rambus, a memory design company, to develop a new super-high-speed DRAM design that would represent a new industry standard. Senior management at Samsung faced fundamental strategic issues: Should it continue to invest in the high-risk DRAM business alone, and could Samsung be a market leader by itself? Should it be steadfast in its opposition to the alternative standard, which represented new opportunities? If it adopted the Rambus design, how many resources should be devoted to the manufacture of Rambus chips? Diversification out of the volatile memory business was a key strategic issue and represented one possible means for reducing Samsung's vulnerability to industrywide downturns, but Samsung's past efforts to expand its nonmemory business had met with only limited success. This case provides the background to the issues Samsung faced as it debated how to meet these challenges while remaining a leading player in the semiconductor industry.

LVMH Moet Hennessey Louis Vuitton (France) acquired a large interest in the Gucci Group (Italy and Netherlands) in January 1990. Gucci accused LVMH of undertaking a "creeping acquisition" and refused to cooperate in LVMH's efforts to gain representation in Gucci's management. The case details the actions of the purported takeover attempt, and the defense mechanisms employed by Gucci. The defenses employed included the use of a poison pill and a white knight. Ultimately, Gucci found a white knight, Pinault-Printemps-Redoute (PPR) of France to save it from LVMH's unwanted advances. The primary question, which the case addresses, is whether the actions taken by Gucci's management in defending its independence were actually in the best interests of shareholders.

Tim Blanchard struggles to balance all the demands facing him as a partner of a consulting firm. He must decide how to serve clients, mentor his people, provide strategy and direction to the high-tech group, and spend time with family. A rewritten version of an earlier case.

The case is a follow-up to two companion cases, ""Jaguar comes to Halewood: The Story of a Turnaround"" and ""Supply Chain Design at Jaguar: Bringing ""Nirvana"" to Halewood"". It reviews the magnitude of the change programme (involving new work culture, workforce, processes, suppliers, and supply chain architecture) implemented by the newly-appointed management team at Halewood prior to the launch of a new Jaguar model, the X-Type. It illustrates the challenges faced by the company during ramp-up to full volume in a brand new, re-designed, revamped, and transformed plant catering to a premium market.

The case focuses on opportunities and challenges for a traditional, bricks-and-mortar retailer to use the Internet as an added channel. A major implementation issue, which raised a heated debate among retailers, concerns Tesco.com's order fulfilment approach, based on in-store picked (rather than dedicated warehouses). It also insists on how can one make Internet retailing a profit-making story.

The case considers the problem of diversifying Chile's economy, in particular its export industries, away from primary products and toward manufacturing. Starting with a recent debate around Chile's failure to attract a major investment by Intel to build a factory for the Pentium III, the case reviews Chile's economic performance in the last quarter-century, devoting particular attention to the following issues: (a) Whether the Chilean economy's heavy reliance on copper and other primary or first-transformation products ought to be a source of concern to policymakers (b) To what extent FDI could contribute to the economy's diversification, and (c) How recent policy debates around the need (or absence thereof) for a government-led ""development strategy"" tie in with traditional political debates in Latin America.