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Posts Tagged ‘economic downturn’

Panera Bread Strategy – Keep Spending in Recession

November 10th, 2010 Comments off

When tough times hit, lots of companies curl up inside a shell and slash spending on things like research & development and expansion thinking that doing so will be the way to survive. Often, though, companies would be better served to pursue strategic plans that focus on growth rather than merely survival during economic downturns. Companies with access to cash and with strong strategic plans have more options with regard to location and competitors that are weak will not be in a position to respond during periods of recession.

Panera Bread Company is a great example of a company that didn’t just survive — it thrived — during the recession. 

Panera has, for a very long time, played for the long term and stayed consistent. Going into the recession, we said, “This is a time to continue with our strategy.”Almost every single one of our competitors said, “We need to pull costs out.” As a consumer, if you walk into their restaurants, the lines are longer, the waits are longer. You have a table next to you with dirty dishes. That is the effect of increasing labor productivity. It has to come out of somewhere.

We’ve continued to invest in labor in our cafés and the quality of our people. We’ve invested in the quality of the food. When everybody pulled back and we did more, the difference between us and our competitors went up.

And we’ve been taking market share. We had near double-digit [same-store sales] for over a year now. The stock has tripled in the recession.

BusinessWeek has the rest of the interview with Panera Executive Chairman and founder Ronald Shaich on its website: http://www.businessweek.com/investor/content/nov2010/pi2010118_183529.htm

Estée Lauder touches up makeup push

September 7th, 2010 1 comment

Estée Lauder has been mentioned in at least one class the last couple weeks as we have discussed strategy.  In that context, here is an interesting piece from today’s Wall Street Journal that talks about changes that are being made at department store cosmetic counters to revitalize the Estée Lauder brands with younger shoppers.

In an effort to reshape Estée Lauder’s U.S. department-store base, which is nearly one-third of the company’s revenue, executives from the company’s Clinique, Estée Lauder and MAC brands have been testing new counter designs that allow shoppers to browse on their own, new promotions and express lanes for busy shoppers.

“There is huge opportunity to restart sales growth and shopper traffic in department stores,” says Mr. Freda.

There are also some elements of cooperation between value chain partners highlighted in the article:

Shaking up beauty departments involves cooperation between cosmetics manufacturers and retailers, because the counters and sales staff is typically funded jointly in closely guarded agreements. Mr. Freda says the economic downturn has helped ease negotiations.

“The recent recession has opened up many companies—for sure ourselves and many of our retail partners—to be willing to put more dynamic change into the way we go to market,” he says. “We are cooperating, I believe, better than in the past in the area of change.”

Theory & Practice: Estee Lauder’s Counter Makeover — Cosmetics Company Touches Up Department-Store Sections With Express Lanes, Browsing Areas. Ellen Byron. Wall Street Journal. (Eastern edition). New York, N.Y.: Sep 7, 2010. pg. B.10

Wall Street: Inside the Collapse – 60 Minutes

March 15th, 2010 Comments off

60 Minutes ran an interesting piece last night featuring Michael Lewis, the author of a book called The Big Short set to be released this week.  One of his contentions touches on something we discuss to varying degrees throughout the course: the behavioral aspects of business and incentives.  His feeling (which seems to be strongly supported) is that Wall Street companies and individuals within those companies are given such incentive to produce short-term results (which result in big bonuses to the employees) that they do not consider the long-term implications of their actions.  And the fact that the government bails out people that make poor decisions increases the moral hazard that this behavior will continue.

Asked what happened, Lewis said, “The incentives for people on Wall Street got so screwed up, that the people who worked there became blinded to their own long term interests. And because the short term interests were so overpowering. And so they behaved in ways that were antithetical to their own long term interests.”

“Wall Street is able to delude itself because it’s paid to delude itself. I mean one of the lessons of this story is that people see what they’re incentivized to see. If you pay someone not to see the truth, they will not see the truth. And, Wall Street organized itself so people were paid to see something other than the truth. And that’s one of the central messages of this story. You have to be very careful how you incentivize people, ’cause they will respond to the incentives,” Lewis explained.

You can read more at CBS News: http://www.cbsnews.com/stories/2010/03/12/60minutes/main6292458.shtml

Or watch the two-part video I’ve embedded below.


Watch CBS News Videos Online


Watch CBS News Videos Online

Strategic Plans Lose Favor

January 26th, 2010 Comments off

This article focuses on some changes being made to strategic planning efforts given the recent economic downturn.  I think the headline is a bit misleading because I feel that strategic planning is as important as ever, but the rigid, long-term plans of the past are becoming obsolete.  Instead, companies are striving to set more short-term plans while allowing flexibility in the long-term to nimbly change things as information become available (whether that information is about competitors, the economy, new products, etc.).  The lessons learned from the economic challenges of the past couple years will shape strategy for years to come.

Walt Shill, head of the North American management consulting practice for Accenture Ltd., is even more blunt: “Strategy, as we knew it, is dead,” he contends. “Corporate clients decided that increased flexibility and accelerated decision making are much more important than simply predicting the future.”

Companies have long planned for changing circumstances. What’s new—and a switch from the distant calendars and rigid forecasts of the past—is the heavy dose of opportunism. Office Depot stuck with its three-year planning process after the recession hit, largely to make sure employees had a common plan to rally around, Mr. Odland says. But the CEO decided to review the budget every month rather than quarterly so the office-supply chain could react faster to customers’ needs.

Theory & Practice: Strategic Plans Lose Favor — Slump Showed Bosses Value of Flexibility, Quick Decisions. Joann S. Lublin, Dana Mattioli. Wall Street Journal. (Eastern edition). New York, N.Y.: Jan 25, 2010. pg. B.7

How to Save 11% of Your IT Spend – Technology – CFO.com

December 21st, 2009 Comments off

Budgeting has gained more importance in the recent difficult economic times.  When times are great, there is more room for error when preparing budgets and spending money, but most companies have not had the luxury of such a buffer in the past couple budgeting cycles.

An interesting article from CFO.com looks at the importance of budgeting and at ways to make the process more reliable and easier.  It seems that making things too complicated doesn’t add much effectiveness when it comes to budgeting and that simply starting from the prior year’s figures may also be a pitfall. The article focuses on IT budgets in particular, but the lessons are important in other areas as well.

The group estimated that some companies wasted 5% to 9% of their 2009 IT spending in missed cost-cutting opportunities, largely by revising the previous year’s budget rather than starting from scratch with a zero-based budget. Freshly scrutinizing every line item tends to unearth significant savings, says Andrew Horne, senior research director for the CIO Executive Board.

Overall, after doing the survey and interviewing the respondents, the CIO Executive Board concluded that some companies may be trying too hard to improve their budgeting process.

“If you try to make the process stronger — more elaborate and sophisticated — you’re likely to waste more effort,” says Horne. “The best customer-specific examples we found all pointed in the direction of being faster and more flexible, and thus able to respond to change faster, rather than trying to do more and more to predict change.”

How to Save 11% of Your IT Spend. New research suggests that zero-based budgeting and thorough scenario planning are keys to an optimal IT budget. David McCann – CFO.com. December 14, 2009

Wal-Mart works with suppliers to shore up financing

November 15th, 2009 Comments off

walmartSimilar to what Sara Lee did a few months ago, Wal-Mart is working closely with suppliers to make sure that they have ample financing.  Recognizing that if a supplier (or several) were to fail their own costs would rise, Wal-Mart is working closely with their value chain partners to make sure that doesn’t happen, especially in light of the recent bankrupty of CIT Group, a major supplier of financing to small/medium businesses.  You might even look at this as Wal-Mart creating a new value chain connecting its suppliers of merchandise with its suppliers of cash (Wells Fargo and Citibank).

Wal-Mart helps apparel suppliers secure financing. Nicole Maestri and Lisa Baertlein. Reuters. Fri Nov 13, 2009 4:35pm EST

Sustainable Business Truths: Perception is Reality

September 7th, 2009 Comments off

harvardbusinesspublishingHere’s a short piece from Harvard Business Publishing that makes the case that regardless of any arguments that can be made about whether or not global warming or climate change is real, the fact is that the business community needs to treat it as such.  The author of this piece has written a book called Green Recovery that may interest some of you as well.  His three main points in dealing with green business concepts are that resources are not infinite, the value is in the value chain, and climate change is a business and political reality.

Sustainable Business Truths: The Least Your Employees Need to Know. Andrew Winston.  Harvard Business Publishing. Wednesday August 26, 2009

Sara Lee Shells Out to Save Suppliers

June 19th, 2009 Comments off

I mentioned this situation in class Thursday night this week in the context of qualitative factors affecting decisions, one of which was the health/reliability of suppliers.  Sara Lee has taken active steps to ensure that their key suppliers remain in business and are able to function efficiently during the economic downturn.  Recognizing that suppliers are key to the success of an enterprise is a relatively new phenomonon since in the past suppliers were looked at in a more adversarial manner, but these days  cooperation is expanding in both directions (suppliers and customers) as people realize the value of strong value chains.

To compensate, the food maker has reached deals with some of its critical suppliers that they can literally take to the bank. For instance, Sara Lee may promise in writing to give certain sow and turkey farmers up to two years’ worth of business in order to encourage those suppliers’ bankers to lend. To be sure, the act isn’t a selfless one: “One supplier can really change not just the availability of your product but the price of that product,” Chappelle told a roomful of finance executives at the CFO Core Concerns conference in Boston today.

Sara Lee Shells Out Sales to Save Suppliers. The food maker may give sow and turkey farmers up to two years’ worth of business to encourage their lenders to loosen credit. By Sarah Johnson – CFO.com. June 17, 2009

General Motors and the Long Road to Bankruptcy

June 4th, 2009 Comments off

The auto industry gets a lot of attention in this course…most of it negative and most of deserved.  The Economist made the General Motors bankruptcy its cover story this week in most of the world and published several pieces about the long decline of GM that led to this point.  Although the current economic situation is easy to blame, at best better times would likely have only delayed the collapse of the once dominant car maker.  The story of the GM collapse can be related to many parts of our course from working with the value chain (unions, customers), to quality concerns, to fixed/variable costs management, to closing under-performing segments earlier, etc.

The filings lodged at 8am with a court in Manhattan were testimony to the size and complexity of the 101-year-old company and to the scale of the problems that had finally overwhelmed it. Until 2008, when it was overtaken by Toyota, GM was the world’s biggest carmaker, producing well over 9m cars and trucks a year in 34 different countries. It has 463 subsidiaries and employs 234,500 people, 91,000 of them in America, where it also provides health-care and pension benefits for 493,000 retired workers. In America alone, it spends $50 billion a year buying parts and services from a network of 11,500 vendors and pays $476m in salaries each month.

The decline and fall of General Motors. Detroitosaurus wrecks. Jun 4th 2009. From The Economist print edition

The bankruptcy of General Motors. A giant falls. Jun 4th 2009. From The Economist print edition