Connecting the classroom to the "real world"
Wall Street Journal
Strategic Positioning at Wal-Mart
1 year ago
I’ve had the link to this article in my Inbox for over a month now, but the timing couldn’t be better for posting it now in terms of what we are discussing in class. I even mentioned Wal-Mart and failed fashion strategy recently in class, probably because my memory had been triggered by seeing this recent article.
Over the past decade, Wal-Mart has veered from one approach to clothing to another. The discount giant has even tried to emulate rival Target Corp. by stocking its own lines of trendy outfits. At other times the Bentonville, Ark., retailer has placed its bets on bulk packs of everyday wear, like tube socks and T-shirts.
“Wal-Mart has suffered from not knowing who they want to be,” said Allen Questrom, the former chief executive of J.C. Penney Co. who recently left Wal-Mart’s board. “They’re either trying to be too fashionable or too basic.”
As mentioned above, not following a consistent path can be dangerous when it comes to being competitive. The article goes on to say that Wal-Mart has to stick with a plan, but that plan should be differentiated to avoid the danger of being seen as a pure cost leader when it comes to fashion.
But sticking to just the most humdrum clothing is a risk for Wal-Mart, too, as it carries lower margins than more fashionable apparel and isn’t as much of a traffic driver or an impulse buy. That is something Wal-Mart could use, as its sales at stores open more than a year have fallen for the last four quarters.
“They need to be dominant in basics like jeans,” said Mr. Questrom, “but they have to be fashionable jeans.”
A Fashion Identity Crisis at Wal-Mart — Newly Installed Apparel Chief Needs to Strike Balance Between Boring Basics and ‘Chasing Glitter’. Ann Zimmerman. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 29, 2010. pg. B.1
What is “Management” in the 21st Century?
1 year ago
50 years ago, management meant a top-down, dictatorial structure. Today, things are more collaborative with participation in strategy formulation and execution not only at the top of the pyramid but in the middle and low levels as well. Where will things be 50 years from now? The Wall Street Journal offers some interesting thoughts about where we have been and where we are headed.
The new model will have to instill in workers the kind of drive and creativity and innovative spirit more commonly found among entrepreneurs. It will have to push power and decision-making down the organization as much as possible, rather than leave it concentrated at the top. Traditional bureaucratic structures will have to be replaced with something more like ad-hoc teams of peers, who come together to tackle individual projects, and then disband. SAS Institute Inc., the privately held software company in North Carolina that invests heavily in both research and development and in generous employee benefits, ranging from free on-site health care and elder care support to massages, is often cited as one company that could be paving the way. The company has nurtured a reputation as both a source of innovative products and a great place to work.
The End of Management — Corporate bureaucracy is becoming obsolete; Why managers should act like venture capitalists. Alan Murray. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 21, 2010. pg. W.3
Nobody Prices Better Than Airlines
1 year ago
One of the first things frequent fliers learn is that the number of fares paid by each person a plane is nearly equal to the number of passengers. Airlines aggressively price routes to try to maximize usage of capacity while also maximizing profits. The end result is that airlines can and do change prices multiple times a day as they jockey themselves amid a sea of competitors to sell what has largely become a commodity, at least in the eyes of leisure travelers. Simply put, too many people have grown accustomed to searching for flights based on price (because nearly every online search defaults to sorting with the lowest priced flights first) that airlines were unable to differentiate themselves effectively from competitors because when their fares were on screen 2 or 3 of the search they never got booked.
Realizing this (and realizing that not every company can compete solely on cost/price) we’ve seen the “unbundling” of items that used to be included in airfares. Everything from checked-baggage fees to higher penalties for changing flights (and even carry-on baggage fees at Spirit Airlines) is now seen as a way to charge customers which, in turn, makes it hard for airline passengers to compare two prices because one needs to know all the fees that each airline can assess to make a valid comparison.
The Wall Street Journal today took a look at airline pricing (more from a consumer’s point-of-view than a scientific one as this appeared in the Personal Journal section) and asked some questions about why it is sometimes cheaper to fly overseas than to fly a few hundred miles. The short answer? Because people are willing to pay more to fly to certain places and/or the competition is not as rigorous on certain (especially international) routes.
The price you pay for a ticket is driven by a number of variables: competition, types of passengers, the route and operating costs. But the biggest factor, by far, is whether discount airlines fly in a market. Low-cost carriers often set the price in markets because competitors feel compelled to match that price or risk losing customers and flying empty seats. And when they aren’t there, big airlines behave radically differently when setting prices.
Over a year ago when Southwest began serving MSP, I offered my own examples coupled with a Marketwatch article of the wide disparity in fares on routes where discount carriers are strong vs. those where they are absent. The Wall Street Journal piece largely comes to the same conclusion.
And when there’s not low-fare competition, prices soar. The most-expensive average domestic ticket in the first quarter was $786 for round-trip flights between San Francisco and Philadelphia, according to the DOT. That 2,521-mile route is dominated by United and US Airways, who are competitors but also partners in the Star Alliance. Fly to Boston from San Francisco—183 miles farther by air than Philadelphia—and you paid an average $296 less round-trip in the first quarter, according to DOT. The difference: JetBlue Airways has 17% of the San Francisco-Boston market, but none of the San Francisco-Philadelphia market.
As you will discover in this course (and in life) the cost of something often has little to do with the price that is charged. Does it really cost 100 times more to make a Coach bag that sells for $4,000 as it does to make the one at Target that goes for $40? Of course not…yet many still fall into this trap with regard to their expectations about prices.
The Middle Seat: You Paid What for That Flight? — It Can Cost More to Fly to Hartford Than Barcelona; How Airlines Determine Ticket Prices. Scott McCartney. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 26, 2010. pg. D.1
The Case AGAINST Corporate Social Responsibility
1 year ago
Here is an interesting take that I’ve not seen so bluntly stated before: CSR can be a bad thing for companies to focus on. I’m a firm believe in the idea that there aren’t any “bad ideas” and then being exposed to more viewpoints is nearly always a good thing, so I offer you this Wall Street Journal piece as food for thought. It appeared in a special section on Monday (the Journal often runs special sections on Mondays in place of Personal Journal, which runs the rest of the week).
The basis for this argument isn’t as crazy as it first sounds…in fact, the author seems to be echoing some of the thoughts I’ve posted before that companies that pursue profits end up being socially responsible. Or vice versa. In the end it might be the pursuit of financial goals that is the means to the end.
In the end, social responsibility is a financial calculation for executives, just like any other aspect of their business. The only sure way to influence corporate decision making is to impose an unacceptable cost—regulatory mandates, taxes, punitive fines, public embarrassment—on socially unacceptable behavior.
Pleas for corporate social responsibility will be truly embraced only by those executives who are smart enough to see that doing the right thing is a byproduct of their pursuit of profit. And that renders such pleas pointless.
WSJ Executive Adviser (A Special Report): The Case Against Corporate Social Responsibility: The idea that companies have a duty to address social ills is not just flawed, argues Aneel Karnani; It also makes it more likely that we’ll ignore the real solutions to these problems. Aneel Karnani. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 23, 2010. pg. R.1
BlackBerry Torch & CVP/Breakeven Analysis
1 year ago
There is a group of educators that closely watches Wall Street Journal articles related to different disciplines (accounting, international business, technology, economics, etc.) and that put together discussion questions based on a few articles each week. I receive these emails and from time to time there is one that pretty much sums up what I like to do with this blog and I post it verbatim here. This is one of those times. The BlackBerry Torch was recently released and many are calling it Research In Motion’s answer to the Apple iPhone. See the material below that relates the Torch to some concepts we cover in class including the value chain and cost-volume-profit (breakeven) analysis.
Piece by Piece: The Suppliers Behind the New BlackBerry Torch Smartphone
by: Jennifer Velentino-Devries and Phred Dvorak
Aug 17, 2010
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.comTOPICS: Cost Accounting, Cost-Volume-Profit Analysis, Managerial Accounting
SUMMARY: The article was written based on analysis and component price estimates by research firm iSuppli after dismantling Blackberry’s new Torch smartphone. The product was assembled in Mexico from parts made by at least 7 companies headquartered in the U.S., South Korea, the U.K., Germany, Japan, and Switzerland. Questions ask students to identify manufacturing cost components, determine gross profit, and consider what manufacturing costs are not separately identified when a company buys completed components for assembly.
QUESTIONS:
1. (Introductory) What are the three components of cost for any manufactured product?2. (Introductory) What is the total cost of the components of the new BlackBerry Torch as estimated by iSuppli?
3. (Advanced) Assuming that the cost shown in the article comprises all of the cost identified in your answer above, what is the gross profit earned on each sale of the Torch? What is the gross profit rate on this product? In your answer, define the difference between each of these amounts.
4. (Advanced) What other costs might be included in the cost of selling this product beyond the component costs shown in this article? What other costs will Research in Motion (RIM) incur in selling this product that are never included in product cost? In your answer, define the terms period cost and product cost.
5. (Introductory) View the video that is affiliated with this article. How many Torch smartphones were sold on the opening weekend for this product? What is the possible result of this sales level?
6. (Introductory) According to the related video, what is the lowest price at which this new phone is offered? Recalculate the answers you gave to question 4 above based on this selling price.
Reviewed By: Judy Beckman, University of Rhode Island
Lack of CPA Credential Hurts Job Seeker
1 year ago
In our entire lives, many of us have never seen times with high unemployment like we are seeing today. The number of people unemployed or under-employed is as high as 35% according to some estimates that I’ve read. With that kind of competition, any advantage one can find to stand out from the rest of the applicants can be huge.
The Wall Street Journal had a piece a couple days ago that looked at stories of real people that have struggled to find work after being the definition of “successful” for many years. Paul Hansen was laid off as vice president and director of accounting after 23 years with Hensley Beverage Company. He was making $90,000/year and probably would make an excellent employee in a similar capacity elsewhere. The problem is that many jobs aren’t even a possibility for him because he lacks a credential, such as CPA, to even get his foot in the door.
Mr. Hansen suspects his lack of a Certified Public Accountant credential hurt him with prospective employers. Promotions within Hensley, the only place he had ever worked as an adult, gave him a false sense of security that he would never need the CPA, he says.
So if you are considering at all pursuing the CMA or CPA credential, I offer you this example of where it could have helped one person in his job search. Is it a guarantee of lifetime employment? Of course not. But there are certain jobs that require one of these just as a minimum qualification. If your ultimate career-goal isn’t an accounting role, check out credentials that may be available to you in other fields…the more you do to differentiate yourself (think of y yourself as a product) from the rest of the crowd the more opportunities you will have to choose from.
Read more about Paul Hansen and several other job seekers at:
The U.S. Job Market: Faces — and Fates — of the Jobless. Anonymous. Wall Street Journal. (Eastern edition). New York, N.Y.: Aug 9, 2010. pg. A.6
E-Readers Go Mainstream As Pricing Model Changes
1 year ago
One of the most interesting pricing events we have playing out before our eyes right now is in the market of e-readers. Several weeks ago, Barnes and Noble kicked of a mini-price war by dropping the price of their 3G Nook from $259 to $199 while pricing their wifi-only version at $149. Within hours, Amazon had responded by undercutting the 3G Nook by selling their 3G Kindle for $189:
Barnes & Noble, the national bookseller, announced Monday that it was dropping the price of its six-month-old Nook e-reader to $199 from $259 and introducing a new version of the device, which connects to the Internet only over Wi-Fi networks, for $149.
Responding rapidly, Amazon.com then cut the price of its popular Kindle e-reader below the Nook, to $189 from $259.
In Price War, E-Readers Go Below $200. By Brad Stone. New York Times. June 21, 2010
As mentioned in the article above, some analysts chalked the price cuts up to the increased threat of the Apple iPad gaining a foothold as an e-book reader while Amazon, in particular, has downplayed that idea.
This week, though, things escalated a bit more. Amazon announced the next generation of their hardware to be released August 27th. They are keeping the 3G model at $189 but announced a new wifi-only model for $139; $10 less than the comparable Nook.
Amazon offers $139 wireless Kindle for mass appeal. By Alexandria Sage. Reuters.com. July 29, 2010 7:07pm EDT
Kindle to Go ‘Mass Market’ — Amazon Digs in Heels by Introducing New, Cheaper Version of E-Book Reader. Geoffrey A. Fowler. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 29, 2010. pg. B.6
While all of this has played out, an important shift has happened. According to the NY Times article linked above, until recently Amazon and Barnes and Noble have sold e-books at a loss while making minimal profits on the hardware. That has changed now, to where a WSJ piece speculates that the hardware is now selling at a loss with the idea being to make up the shortfall in volume by selling the e-books. This is more like how printer and cellphones are sold with the “consumables” (ink or minutes, as the case may be) being the profitable item.
Amazon’s price-cutting won’t be cheap. The company said last year that its Kindle manufacturing costs were “significantly higher” than an estimate from iSuppli of $185.49. Costs likely have come down since then, and not offering cell-network access reduces costs as well. Still, it is a good bet the company is losing money at $139 a unit.
The High Cost of a Cheap Kindle. Martin Peers. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 30, 2010. pg. C.12
I’m guessing things will continue to evolve as we head to into the holiday season and some articles I’ve read predict a sub $100 e-reader by then.
I’ve finally made the plunge myself and opted for the $189 Kindle coming out on August 27th but I’m hopeful that even while I have it preordered the price may drop. Looking at what has happened in the past 5 weeks makes it seem reasonable to expect some price cuts in the next 4, doesn’t it? Stay tuned…
GE Finds Rougher Sledding in China – WSJ.com
1 year ago
General Electric is about as big as multinationals come and this article gives some examples of issue even a large company can have implementing strategy worldwide.
Chinese wind-turbine makers such as Sinovel Wind, Xinjiang Goldwind Science & Technology and Dongfang Electric — buoyed by China’s national spending on wind energy — grew rapidly, stealing share from world leaders such as Denmark’s Vestas Wind Systems A/S and GE, and now rank among the top 10 wind turbine producers globally. In April, China Commercial Aircraft Co., or Comac, selected Hamilton Sundstrand, a subsidiary of United Technologies Corp., to supply the $1 billion worth of electric power generation and distribution systems for a proposed jet plane instead of GE and other bidders.
GE’s Road In China Is Getting Bumpier. Paul Glader, Shai Oster. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 9, 2010. pg. B.1
Apple Knew of iPhone Antenna Glitch – WSJ.com
1 year ago
Apple Knew of iPhone Antenna Glitch – WSJ.com
See the link above for more detail about an interesting real-world example of how quality can impact the image of not just a product but of a company. The timing here is great since we just discussed in class the idea that money spent on prevention/assessment can save a company from embarrassment that comes from having external failures.
It also seems that some of the secrecy that these days surrounds product-launches such as the one for every revised iPhone may have contributed to the antenna issue not being caught.
The iPhones Apple sends to its carrier partners for testing are “stealth” phones that disguise a new device’s shape and some of its functions, people familiar with the matter said. Those test phones are specifically designed so the phone can’t be touched, which made it hard to catch the iPhone 4′s antenna problem.
Apple has a news conference planned for Friday to address the antenna problem and perhaps that will take care of this issue. If not, Microsoft is already jumping on the bandwagon to ridicule their competitor by calling the iPhone 4 “Apple’s Vista.”
And as if Microsoft bashing them isn’t enough, even Congress wants to get involved in the Apple debacle.
The mounting iPhone 4 controversy has hit a receptive ear in Washington, as Sen. Charles E. Schumer (D., N.Y.) Thursday wrote to Mr. Jobs urging Apple to come up with a “permanent fix” to the problem at no cost to customers. Mr. Schumer asked Apple to provide customers with a clearly written explanation of the cause of the iPhone 4′s reception problem and “make a public commitment to remedy it free of charge.”
Really? Is this the best thing they have to do over in the Senate? Aren’t there wars to handle? Isn’t the economy still fragile? Chuck Schurmer wants to make sure all the people that can afford iPhones get their problems fixed?!!
Toyota Changes How It Develops Cars
1 year ago
Here is a very timely article about how Toyota is challenging its engineers to focus on quality at the design phase to avoid issues later on. As mentioned in class with regard to quality and costs, often the best (or only) place to make changes that have a true impact is at the design phase.
Toyota Motor Corp. is stretching out how long its new models are tested before they go into production and reducing the number of outside engineers it uses in a bid to overcome a spate of quality problems.
Randy Stephens, a senior Toyota engineer based in Ann Arbor, Mich., said company executives recognize that there were quality issues with the last generation of vehicles, which were developed while the company was in a global-growth mode. Executives began talking about making changes nearly a year ago, he said, but the recent recall problems have spurred the company to act.
Toyota is going to increase the lead time for development but also simply the number of options (on such things as engines) to make the focus of the engineers. Interestingly enough, the article mentions that costs will increase but obviously Toyota feels that the benefits of increased quality will outweigh this cost increase.
In addition to extending product-development lead times, Mr. Uchiyamada and his engineering team have decided to cut the number of engine and other key-feature variants and options to simplify and narrow the scope of engineering work, allowing engineers to focus more on quality.
Toyota may also further reduce the use of virtual engineering and begin using more vehicle prototypes. Doing so extends development time and increases costs.
And finally, my last observation is with Toyota bringing certain work back in-house that they have been outsourcing. Recall that when we talked about decision making and make/buy situations that quality concerns were one of the non-financial factors that companies need to consider before decided to outsource. It seems that Toyota feels that they can do a better job themselves rather than farming out this work.
The company is also working to bring development work that had been sourced to outside engineers back inside. Some outside engineers actually work side by side with Toyota’s engineers inside Toyota research and development centers. But using contractors has led to a breakdown in communication and potential misunderstandings, Mr. Stephens said.
Toyota Alters Car Development — After Quality Problems, It Stretches Out Testing of New Models, Cuts Number of Outside Engineers. Mike Ramsey, Norihiko Shirouzu. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 6, 2010. pg. B.1
