ikea

Ir1no%at1on at IKEK

Redecorating and renovating have become the international pasttnne In a post 9/11 world facing persistent terrorist alerts, more and more people are opting to stay home and make their homes safe havens This phenomenon coupled with lagging economies worldwide has contributed tremendously to the success of IKEA—the Swedish home furniture giant In the past 10 years sales for IKEA have tnpled, gro ing from o er $4 billion in 1993 to O\ er $12 billion in 2003

Much of IKEA s success can be attributed to its founder, lngvar Kamprad Kam prad us€d graduation money to start IKEA in the small Swedish village where hc was born I started off selling belt buckles, pens, and watches, whattver resi dents in the small local village of A needed Eventually Kamprad moved on to selling furniture One day in 1952 while struggling to fit a large table in a small car, one of Kamprad’s employees came up with the idea that changed the fur niture industry forever—he decided to remove the legs IKEA’s fiat-pock and self- assembly methodology was born. It rocketed the company past the competition. “After that [ followed a whole senes of other self-assembled furniture, and by 1956 the concept was more or less systematized writes Kamprad

Kamprad is dedicated toniamtaining the corporate culture he has helped define over the past 50 years He is a simple man—his idea of a loxury vacation is rid his bike He is fiercely cost-conscious and, es en though his personal wealth has been estimated in the billions, he refuses to fly first class He values hunian inter— action above all and, even though retired, he still isits IKEA stores regularly to keep tabs on what is going on when. the business really happens

The culture at IKEA is a culture closely connecttd with Kamprad s simple, farm-

raised, Swedish roots. It is a culture that strives “to create a better everyday for the

many people.” IKEA supports this culture by

hiring coworkers (IKEA prefers the word coworkers to “employees”) who are

supportive and work well in teams;

expecting coworkers to look for mnovative, better ways of doing things in cx cry

aspect of their work

• respecting coworkers and their views;

• establishing mutual objectives and working tirelessly to realize them;

• n&cing cost part of ever thing they do from improving processes for production to purchasing wisely to tnx cling cost-eftectively,

• avoiding complicated solutions—simplicity is a strong part or the IKEA culture,

• leading by Lxample, so IKEA leaders are expected to pitch m x hen needud and create a good woilcing environment, and

• believing that a diverse work force strengthens the company en erall

•

The IKEA culture is one that resonates for many. The buildings are easy to identify—the giant blue and gold warehouses tk resemble oversized Swedish

flags are hard to miss Millions of customers browse through the Klippan sofa and Palbo footstools (Nbrdic names are given to all IKEA products) in the stark

dimly lit warehouses The surroundings may not be lavish and the service ma be mostly self-service but customers keep going back not just for the bargains but to experience the IKEA culture as well

1 D scuss the three giput components of the Congruence Model as they apply to

the success of IKEA

2 Consider Schein s Four Key Orgamzational Culture Factors as described in

Highlight 11 5 What examples can you identify within the IKEA organization

that contribute to the company s strong corporate culture?

3 Based

leader 2

‘Developing Leaders at UPS’

UPS is the nation fourth largest enipi e with 357,000 employees worldwide and operations in more than 200 countries. UPS is consistently recognized as a “top companies to work for” and was recently recognized by Fortune as one of the 50 best companies for minorities. A major reason for UPS’s success is the company $ commitment to its employees. UPS understands the importance of providing both education and experience f or its ne t generation of leaders—spending $300 million dollar annually on education programs for employees and encouraging promo tion from within All employees are offered equal opportunities to build the skills and knowledge they need to succeed A per t example of thi is Jovita Carranza.

Jovita Carranza joined UPS m 1976 as a part time clerk in Los Angeles Carranza demonstrated a strong work ethic and a commitment to UPS and UPS rewarded her with opportunities—opportunities Carranza was not shy about taking advan tage of. By 1985 Carranza was the workforce planning manager in Metro LA. By 1987 he was district human resources manager based in Central Texas. By 1990 he h d accepted a move to district human resources manager in Illinois. She received her first operations assignment, as division manager for hub, package, and feeder operations, in Illinois in 1991. Two years later, he s id yes to becoming district op erations manager in Miami. In 1996 she accepted the same role in Wisconsin By 1999 Carranza’s progressive uccesses led UPS to promote her to president of the Americas Region. From there she moved into her current position as Vice Pre ident of UPS Air Operations, based in Louisville, Kentucky

disney

Disney and his brother Roy started Disney Brothers Studio in Hollywood in 1923 Artistically the 1930s were D best years Walt Disney embraced new ad vances in color and sound, and pusned his team of entiusiastic young artists to pursue the most sophisticated techniques of the day Disney risked cx erything on his first feature film, Snow White and the Seven Dwarfs, released in 1937 Audiences loved it His focus on the positive and the life-affirming themes he incorporated into all his work provided much-needed smiles and laughter for audiences during the depths of the G Depres

Roy Disney became chairman after Walt died of lung cance’ in 1966 In 1971 Roy cued r his son, Roy F Disney became the company’s orincipal individual share holder In 1984 new CEO Mic Eisner and president Frank Wells ushered in an era of innovation and prosperity. They instituted marathon meetings for generating creative ideas, forcing everyone to work grueling hours The approach worked and for the first 10 years of his tenure, Eisner was considered a gemus He revived Dis ney’s historic animation uni invested m the theme parks, led the expansion into Europe, and breathed new life into the company by partnenng with cutting-edge companies like Pixar and Miramax. Eisner built Disney into a formidable media powerhouse, boosting its profits sixfold and sending its share price soaring almost 6,000 percent.

But more recent years ha cc been challenging for Eisner and the Disney company F snei s initial magical effect has lost its shine and his more recent actions and deci sions have had less-than-desirable effects on the company Roy Visney the last of the founding fan’ ly to work at the company, quit the board in 2003 and cegan a cam paign to try and oust Eisner In his letter of resignation Disney asserted that Eisner has become an ineffectu e leader claiming that Eisner consistently nucro-manages’ everyone -esulung in loss o morale He saw Eisner’s cost-conscience decisions to shut down an Orlando animation studio and cut costs at theme parks as resulting in ‘creative brain drain arid creating the perception that the company is looking for quick buck solu rathtr tnan long-teim value Disney also cited Eisner s in ability to mamtaa-r successful relationships with creatix e partners like P xar and Mi- ran-tax (both Contracts with these studios were not renewed) and his lack of a succession plan as dangerous to the future of the company

Disney has found a lot of support in his plan to ‘SAVE DISNEY In the spring or 2004 stockholders supported Disney by voting against Eisner s re-election as president Eisner str maintains his position as CEO and has expressed his mten tion to holci on tu that position until his contract expires in 2006

1 Considei Walt Disney s effectiveness in terms of the three domains of leadership— the wader, the toilowers, and the situation For each domain name factors that con tributed to Disney’s success.

2. Now think about Michael Eisner’s leadership effectiveness. Name factors within the three domains of leadership that might be responsible for contro versy now surrounding Disney.

leader case 1

Richard Branson Shoots for the Moon’

The Virgin Group is the umbrella for a variety of business ventures ranging from air travel to entertainment With close to 200 companies in over 30 countries it is one of the largest companies in the world At the head of this huge organization is Richard Branson Branson founded Virgin over 30 years ago and has built the organization from a small student magazine to the multibillion-dollar enterprise it is today.

Branson is not your typical CEO Branson's dyslexia made school a -struggie and sabotaged his performance on standard IQ tests His teachers and tests had no way of measuring his greatest strengths—his uncanny knack for uncovering lucrative business ideas and his ability to energize the ambitions ot others so that they, like he, could raise to the level of their dreams

Richard Branson's true talents began to show themselves in his late teens. While a student at Stowe School in England in 1968, Branson decided to start his own magazine, 'Student' Branson was inspired by the student activism on his campus in the sixties and aecided to try something different Student differed from most college newspapers or magazines it focused on the students and their interests Branson sold adsertismg to major corporations to support his magazine He included articles by Ministers of Parliament, rock stars, intellectuals, and celebrities Student grew to become commercial success

In 1970 Branson saw an opportunity for Student to offer records cheaply by running ads for mail-order delvery The subscribers to Student flooded the magazine with so many orders that his spin-off discount music venture proved more lucra tive than the magazine subscriptions Branson reciu the staff of Stvaent for his discount music business He built a small recording studio and signed his first artist Mike Oldfield recorded ‘Tubular Bells at Virgin in 1973—the album sold 5 million copies Virgin records and the Virgm brand name were born Branson has gone on to start his own airline (Virgin Atlantic Airlines was launched in 1984) build hotels (Virgin Hotels started in 1988) get into the personil finance business (Virgin Direct Personal Finance Services was launched in 1995) and even enter the cola wars (Virgm Cola was introduced in 1994) And those are just a few of the

highlights of the virgin Group—all this while Branson has attempted to break world speed records for crossing the Atlantic Ocean by boat and by hot air balloon

As you might guess Branson s approach is nontraditional—he has no giant corporate office or staff and few if any board meetings Instead, he keeps each enterprise small and relies on his skills of empowering people s ideas to fuel success When a flight attendant from Virgin Airlines approached him with her vision of a wedding business Richard told her to go do it He even put on a wedding areas himself to help launch the publicity Virgin Brides was born Branson i dies heav on the creatu ity of his staff—he is more a supporter of new ideas than a creator

of them He encourages searches for new business ideas ci ervwhere he goes and even has a spot on the Virgin Websi te called Got a Big Idea

In December 1999, Richard Branson was awarded a knighthood in the Queen’s Millennium New Year s Honours List for services to entrepreneurship “ What a next on Branson s list’ He recently announced that Virgin was investing money in trying to make sure that, in tne not too distant future peovle from around the world will be anle to go into spacc / Not everyone is convinced that space tourism can become a fully fledged part of tne travel industry but s ith Branson behind the idea it just may fly 1 Would you classify Richard Branson as a manager or a leader’ What qualities distmguish him as one ovei the ther

2 Describe the relationship between Branson and his followers.

3 Identify the myths of leadership development thai Richard Branson s success helps to disprove

case study 13 july

CASE STUDY

Peekay Steels

Pravin Kumar flicked the TV off as he saw, for the nth time that night, the second tower of the World Trade Centre in New York come crashing down. "What kind of people would plot so meticulously to take thousands of innocent lives ?" he wondered, as a chill went down his spine. "lt hasn't been a good day for me and lots of others in the US," Kumar muttered, switching on a lamp next to his king-sized chair, and pulling out a file from his expensive Piene Cardin portfofio.

A few hours earlier, the 48-year-old CEO of Peekay Steels, which had four other subsidiaries dealing in aluminium, power, oil exploration, and telecom, had emerged from a gruelling four-hour session with Dalal Street analysts. It seemed the analysts thought there was nothing right with his diversified group. The hundreds of crores of rupees that the flagship had mised to fund forays into new growth sectors were proving be a mill round Peekay's neck. The bottomline was bleeding not because the steelmaker was inefficient; rather, the culprit was the staggering interest Peekay had to pay month after month.

Kumar flipped a few pages of his file and got to a section titled 'Competitive Analysis'. He put a finger on the column that read production cost and traced it down to the row where Peekay's prices were given : $260 per tonne. Moving his gaze further down, he looked at the global benchmark , $280 per tonne. Feeling bitter, he picked up a pen and circled the number under the financial charges column. "We are paying $81 as interest charge for every tonne of steel that we make," he said it aloud for the words to sink in. "So, by the time my steel leaves the factory it cosls $341 per tonne."

In another few hours, Kumar knew he would be seated in the back of his black Mercedes Benz along with three of his key elecutives, on a four-hour drive outside the city to Peekay's steel plant. But before hitting the sack for a few winks, Kumar decided to call Anirudh Desai, Peekay's director of finance. Desai was watching CNN too when Kumar called him on his mobile. "Do you think our US exports are going to be affected if there's a war ?" Kumar asked Desai wiihout bothering to say hello or expressing his shock over the attacks.

"It could go either way," replied Desai. "lf there's a war, the US may step up imports. But if the business sentiment worsens, purchases may actually fall., "Let's talk about it later today," said Kumar. "But, Ani, the reason I called was to find out something specific. Can we lower our interest costs without losing control of any of our subsidiaries? "

"l think so," replied Desai. "But given the complicated shareholding pattern within the group, individual spin-offs might be tricky. The joint venture route is an option we could look for all our non-steel businesses. Even if we were to forfeit the controlling stake, we could still retain a major holding in each subsidiary. I have done some scenario building, but I don't think I can take you through that over the phone. May be I could do that on our way to the plant tomorrow ?"

"l guess you could," said Kumar, wishing Desai good night, and putting the cordless phone back into its cradle.

Kumar had slept for all of an hour when the electronic clock on the table by his bedside beeped. By quarter to seven, Desai and two other senior execs were at Kumar's house, waiting for Kumar to join them for a quick breakfast before setting out on the ride. "What's the update on the attacks ?" Kumar asked no one in particular, but Desai replied. "No news yet on how many dead, but it seems the fatality could run into a few thousands." Over the next 15 minutes, the terrorist attack dominated the conversation at the breakfast table.

Getting into the car, Kumar switched to the business at hand. "We simply have to get our financial costs down," he said, turning to Desai. "Yes, but the question is how ?" countered Desai. "In the past, we have used the flagship as an investment vehicle for setting up projects in power, oil, aluminium, and telecom. Not only are these businesses capital intensive, but they have been hit by time and cost over-runs. That has sent our interest costs into a spiral."

''But aren't we trying to swap expensive debt with cheaper funds from abroad ? " questioned Kumar.

"Yes, but this may not be the best of time to do that," said Desai. "Besides, let's face it, our track record at repaying loans isn't exactly blemishess. More than once we've had our loans rescheduled."

"But can't we convert our inter corporate borrowings into convertible debentures ?" said Kumar.

"l'm noi confident of this happening," Venkatesh Krishnan, a nominee on Peekay's board, butted in. "For one, your stock price has taken a severe beating on Dalal Street, and investors are aware of the financial problems you are facing. Also, where is the market for IPOs ?"

"So, what is the solution ? Should we, like the analysts want, spin off our low projects into companies and offload the borrowings from our boots ?" Kumar asked. "This would sharpen Peekay's business focus What do our institutional shareholders think about this ?" continued Kumar, looking to Krishnan.

Mulling Over The Break-Up Why it Helps... Sharpens business focus to just steel-making Rids the balance-sheet of expensive borrowings Helps leverage cost leadership in steel manufacture Raises investor interest and, hence, shareholder value ...And Why it Doesn't Lowers the promoters stake precariously Throws the company open to takeovers Reduces asset strength in the balance-sheet Limits growth opportunities for individual managers

"The consortium does not favour a break-up," the nominee-director replied. All your lenders see merit in a large balance sheet that comes with a diversified portfolio. But, frankly, my own view is different. True, your operational efficiency in steel is comparable to the best in the world. But the profitability - and indeed the survival - of the group is at stake because of its conglomerate nature. And the only option is for you to stick to what you are good at and divest areas that are marginal to your core business of steel."

"But a break-up has its flipside," argued Kumar. "A single business company could attract the attention of predators with an eye on synergy and cost savings. Our power unit, for instance, which has a capacity to produce 1,000 MW of power might interest a larger power unit. A pure play is more likely to invite a take-over bid which may be good for shareholders - since such acquisitions occur at a substantial premium to the market price - but bad for the incumbent management, because it reflects poorly on their past performance."

"lf we break up," Desai added, "the group would shrink in size. The growth opportunities for individual managers would be reduced. But the overriding rationale against a break-up is that we need balance in our portfolio. We are good at steel, but the future lies in emerging areas like telecom. So, we should be in telecom".

"And let us not forget," pointed out Kumar, "that our shareholders invested in us because we are a diversified company. I don't think we should be concerned about focus because that is not the reason why investors came to us in the first place." As the sprawling steel plant loomed into sight, Kumar knew that answers would be hard to find. Just the same, he had to find them quickly.

Questlons :

(a) What strategic alternatives, you think, are available to Peekay Steel and which alternative would you recommend and why ?

(b) Is it possible for Peekay to lower interest costs without losing control of any of its subsidiaries? If yes, how ? lf no, why ?

for 11 july 2nd

Mr. Harish Jain, CEO of Energetic Enterprises, has established the firm for the manufacture and marketing of an innovative product. The firm earned a reputation of its product within two years of its inception and enjoyed monopoly position in the market for its product. Now it has a turnover of about Rs. 80 crores.

Three years back, some firms entered the market and offered cheap substitutes which were of better quality. This year, Mr. Harish Jain is worried because about 40% of the marketshare has already been taken away by the new firms and he is not able to check this trend.

Mr. Jain has been looking after both production and marketing functions though finance is being looked after by a finance manager having a professional degree in chartered accountancy Mr. Jain has recently lowered the price of his product to fight competition, but even this has not helped. He has now approached you for advice to stabilise his sales volume.

Questions :

(a) What is the orientation of Mr. Jain in selling his product ?

11 july comprehension cases

re

has gradually

declined to 15%

from earlier

30%. About a

couple of years

ogo, the brand

opened its first

company-owned

retail outlet

called "ABC Ki

Duniya" (World

of ABC). The

outlet reassures

the customer

about the

genuine

material, and

encourages

interaction

besides

displaying a

range of

refractory and

aluminium

based products.

This type of

outlet is also

likely to

enhance the

company's

image.

Question :

Taking into

consideration

the cement

market and the

commoditised

nature of the

product,

comment on

the pros and

cons of an

outlet of this

kind. Would

such outlets

alone enhance

sales? Explain

your answer