Chapter 9

Analyzing Strategic Management Cases

What are Strategic Management Cases?

Case a detailed description of a
challenging situation faced by an organization, usually including a chronology of events and extensive support materials

Case Analysis a method of learning

complex strategic management concepts by placing students in the middle of an actual situation and challenging them to figure out what to do
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Why do case analysis?

Simulates real-world experience Complements other learning methods Trains one to analyze, make decisions Improves skills
Differentiate Speculate integrate

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Why Analyze Strategic Management Cases?

Why do some firms succeed and others fail? Why are some companies higher performers than others? What information is needed in the strategic planning process? How do competing values and beliefs affect strategic decision making? What skills and capabilities are needed to implement a strategy effectively?
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Skills Developed from Case Analyses

Differentiate
Evaluate many different elements of a situation at once Differentiating between the factors that are influencing the situation Understanding that problems are often complex and multilayered
Dig deep Being too quick to accept an easy solution will probably fail to get to the heart of the problem

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Skills Developed from Case Analyses

Speculate
Envision explanation that might not readily be apparent Imagine different scenarios Contemplate the outcome of a decision Deal with uncertainty and incomplete knowledge
Missing data Information may be contradictory Speculate about details and consequences that are unknown

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Skills Developed from Case Analyses

Integrate
Look at the big picture Have an organization-wide perspective Integrate information into one set of recommendations affecting the whole company
Changes made in one part will affect the others Integrate the impact of various decisions and environmental influences on all parts of the organization

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How to Conduct a Case Analysis

Prepare for a case discussion
Do your homework Investigate Analyze Research potential solutions Gather the advice of others Become immersed in facts, options, and implications
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How to Conduct a Case Analysis

Put yourself inside the case
Think like an actual participant
Strategic decision maker Board of directors Outside consultant

Try different perspectives

One of the most challenging is as a business founder or owner Hiring an outside consultant may not be an option

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Five Steps for Conducting a Strategic Management Case Analysis

1. 2. 3. 4. 5.

Become familiar with the material Identify problems Conduct strategic analysis Propose alternative solutions Make recommendations

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Five Steps for Conducting a Strategic Management Case Analysis

Step 1: Become familiar with the material
Read quickly through the case one time Use initial read-through to assess possible links to strategic concepts Read the case again, making notes Evaluate application of strategic concepts After forming first recommendation, thumb through the case again to assess consequences of actions you propose

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Five Steps for Conducting a Strategic Management Case Analysis

Step 2: Identify problems
Some cases have more than one problem Avoid getting hung up on symptoms Articulate the problem
Writing down a problem statement gives you a reference point when you proceed through case analysis

Some problems are not apparent until after you do the analysis

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Five Steps for Conducting a Strategic Management Case Analysis

Step 3: Conduct strategic analyses
Determine which strategic issues are involved Use strategic tools to conduct the analysis
Five Forces analysis Value chain analysis Contingency frameworks Financial analysis

Test your own assumptions about the case

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Financial Ratio Analysis Techniques

Short-term solvency (liquidity) ratios
Current ratio Quick ratio Cash ratio

Long-term solvency (leverage) ratios

Total debt ratio debt-equity ratio Equity multiplier Times interest ratio Cash coverage ratio

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Financial Ratio Analysis Techniques

Asset utilization (turnover) ratios
Inventory turnover Days sales in inventory Receivables turnover Days sales in receivables Total asset turnover Capital intensity

Profitability ratios
Profit margin Return on assets (ROA) Return on Equity (ROE)

Market value ratios

Price-earnings ratio Market-to-book ratio

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Five Steps for Conducting a Strategic Management Case Analysis

Step 4: Propose alternative solutions
Develop a list of options first without judging them
Do nothing may be a reasonable alternative

Evaluate alternatives
Can the company afford it? Is the solution likely to evoke a competitive response? Will employees accept the change? How will it affect other stakeholders? How does it fit with the vision, mission, objectives? Will the culture or values of the company change?
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Five Steps for Conducting a Strategic Management Case Analysis

Step 5: Make recommendations
Make a set of recommendations that your analysis supports Describe exactly what needs to be done Explain why this course of action will solve the problem Include suggestions for how best to implement the proposed solution The solution you propose must solve the problem you identified

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How to Get the Most from Case Analysis

Keep an open mind Take a stand for what you believe Draw on your own personal experience Participate and persuade Be concise and to the point

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How to Get the Most from Case Analysis

Think out of the box Learn from the insights of others Apply insights from other case analyses Critically analyze your own performance Conduct outside research

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Preparing an Oral Case Presentation

Organize your thoughts Emphasize strategic analysis Be logical and consistent Defend your position Share presentation responsibilities

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Preparing a Written Case Analysis

Be thorough Coordinate team efforts Avoid restating the obvious Present information graphically Exercise quality control

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Case Analysis
Case 1 Enron: On the Side of Angels

Were on the side of angels. Were taking on the entrenched monopolies. In every business weve been in, were the good guys. -- Jeffrey Skilling, President and CEO, Enron Corporation

Background

Began as natural gas distribution co. Evolved into financial services firm Aggressive culture Excessive spending Claimed revenues of $111B in 2000 Named Americas Most Innovative Company for 6 consecutive years (1996-2001) by Fortune Named to Fortunes 100 Best Companies to Work for in America list Share price > $90

Key Problems

Organizational culture/leadership/ethics
Quotes from executives Personnel practices Reward systems

Unethical financial arrangements

Corporate governance
Special Purpose Entities (SPEs) Mark-to-Market accounting Oversight of management

Analysis: PEST

Political
Lobbied for deregulation $7M in contributions Clinton/Bush era

Economic
Bull market Deregulation of markets Making markets

Societal
Excess 9/11/2001

Technological
Dot-com bubble EnronOnline

Analysis: Five Forces

Barriers to Entry Substitute Products Suppliers Buyers Competitors

High oil/gas Low tech/financial services
Commodities markets

Plenty of financial services firms available

Analysis: Value Chain

Marketing
Great reputation

General administration
Culture Opportunistic

Service
Branching out to offer more services

Procurement
Purchase suppliers

Low ethics/improper controls/fraud

Technology development
EnronOnline

Human resource management

Peer Review Committee (PRC) Compensation levels Benefits

Analysis:VIRO

Valuable Difficult to Imitate

Oil/gas
Very diverse Many other gas and financial services firms Successful, but opaque

Rare

Well-Organized

Analysis: SWOT

Strengths
Innovative Talented personnel Charismatic leadership Goal-oriented Steady growth history Excellent reputation

Weaknesses
Lost focus on core competencies Corporate ethics Financial controls BOD governance Conflicts of interest

Opportunities
Deregulation Emerging markets

Threats
Low barriers to entry Market analysts

Alternatives
Focus on profitable entities/core competencies Disclose SPEs, properly book assets/debts Find independent auditors Replace executive management Remove other fraudulent employees Replace BOD with independents Establish new HR practices Promote new culture of ethics (through actions)

Recommendations
Focus on profitable entities/core competencies Disclose SPEs, properly book assets/debts Find independent auditors Replace executive management Remove other fraudulent employees Replace BOD with independents Establish new HR practices Promote new culture of ethics (through actions)

Fallout

Share price < $.50 Employees, investors lost $ Bankruptcy Criminal charges to executives Arthur Anderson LLP Audit/consulting companies WorldCom, etc. Sarbanes-Oxley Act

Sarbanes-Oxley Act
Stronger penalties for fraud Public companies can no longer make loans to management More transparency to financial statements reported to public Public companies must maintain a stronger independence from their auditors Public companies must audit and report on financial internal control procedures