Spotco, a Successful Small Business Turnaround Story

Courtesy ASME’s Affinity Partner, American Management Association (AMA)

Founded in 1996, SpotCo (www.spotnyc.com) is a hot New York boutique ad

agency. It does cutting-edge print and broadcast advertising for Broadway
productions like Rent, Oprah Winfrey’s The Color Purple, Drowsy Chaperone,
and The History Boys (2006 Tony Award for Best Play) as well as television
clients like ESPN, MTV, and TBS. But by 2005, SpotCo had hit a roadblock.

Seat-of-the-pants management, which worked when SpotCo had a handful of

employees, became splintered as the company grew to 40-plus employees.
Structure, leadership development, and soul-searching were needed to
successfully guide SpotCo and its owner through the adaptive transition.

The firm’s owner, Drew Hodges, along with his staff, was frustrated. The company was still growing,
but all decisions had to go to the top. There were few department heads. Employee reviews were done
inconsistently from department to department. Minor disagreements often grew into nasty arguments,
particularly between the creatives and the businesspeople. There was nothing that looked like a team.
Hodges, involved deeply in creative work, knew he had to “kick himself upstairs” and focus on running
the company—but had no idea how to do that.

Unable to resolve the company’s growing pains, Hodges brought in Marty Linsky, a top leadership
development expert with Cambridge Leadership Associates (CLA). He was impressed by the theory
and examples of adaptive leadership described in a book Linsky had co-authored, Leadership on the
Line. Thanks to collaboration among Hodges, his management team, and CLA, SpotCo today has a
real management structure in place that can support substantial growth. Hodges no longer has to be
involved in every decision or mediate every dispute among his crew of impassioned creatives and
salespeople.

Here are the steps Linsky took to bring about Spotco’s turnaround. First, he conducted in-depth
interviews with six key managers at the firm. As a neutral, skilled outsider he was able to solicit
candid assessments of the company’s problems. He also spent a good deal of time personally coaching
Hodges in leadership skills. Changing people’s behavior is always a tough challenge; people become
used to their comfortable rut. Linsky then reported his candid, anonymous—and revelatory—findings
back to Hodges.

Next, Linsky set up regular company meetings for Spotco’s department heads, along with Hodges and
his two top executives. The meetings proved productive almost immediately, rapidly morphing from
gripe forums to leadership sessions, where collective decisions got made.

Hodges, a strong personality, learned to listen more, talk less, and give his people more room to make
their views known. Items that used to result in heated discussions were handled dispassionately and
efficiently. Today, everyone pulls together for the common good of the company, instead of fighting
turf wars. There are many leaders instead of just one creative “genius” running everything.

Linsky says the company’s success resulted from looking at the nature of the problems SpotCo faced
through the lens of ideas about how organizations get “stuck” -- and then applying proven strategies
to get SpotCo “unstuck.”

Hodges has benefited personally as well as professionally. Work is more fun now that he has given up
the roles of parent and peacemaker. Instead, he sends problems back to the groups for them to work
out and resolve on their own.

“We now work together with one clear vision,” says Hodges. With routine matters handled much more
easily, the company’s leadership can focus on strategic questions, such as whether to establish a
major branch in the West.
Strategy Management

A case study of Wal-Mart

Introduction

Porter (2002) states that root of the problem lies in the lack of distinguishing between
operation effectiveness and strategy. The expedition for productivity, quality and speed has resulted in
management tools and techniques, total quality management benchmarking, time based competition,
outsourcing, partnering, reengineering, change management. In any organization, strategy
management is the key to its success. There are many theories based on this assumption that without
a proper strategy and planning, it is difficult for any industry to survive irrespective of its size. It is
necessary to understand here that all the major corporate organizations have established themselves,
thanks to superior strategic planning and implementation. The retail industry is making news
everywhere with not only the traditional industries increasing their outlets but some major corporate
industries also intruding into this industry like Fresh @ Reliance of Reliance Industries, More of Aditya
Birla Group in India. Wal-Mart, a US based retail industry, which is known as the giant in the retail
industry has survived and is still the huge enterprise in the world which deals with almost all the F&B
products, apparels, etc. It is not only the largest company in world but also the largest company in the
history of world.(Fishman, 2006) The present paper is divided into four sections to understand and
answer as what makes Wal-Mart the best in the industry, 1) retailing industry at the time of Wal-
Mart’s innings, 2) Wal-Mart’s Competitive advantage and key components, 3) Wal-Mart’s Strategy and
4) Sustainable growth of Wal-Mart.

I. Retail Industry – Wal-Mart says Hello!

Strategic decisions are ones that are aimed at differentiating an organization from its
competitors in a way that is sustainable in the future. (Porter, 2002) Porter strongly advocates that
decisions in business can be classified as strategic if they involve some innovation and difference that
results in sustainable advantage. According to Patrick Hayden et al (2002) the retailing industry
adopted the style of discounting on its merchandise after the Second World War. It is learnt that
discount retailing was not the strategy at the time Kmart, Target and Wal-Mart first started operating
their business. Frank (2006) states that when Sam Walton was franchising for Ben Franklin’s variety
store, invented an idea of passing on the savings to his customers and earning his profits through
volume. Prior to Wal-Mart’s entry into the market, Sidney and Hebert from Harrison founded Two
Guys discount store in the year 1946 which dealt in hardware, automotive parts and later on
groceries. Two Guys was the forerunner as compared to today’s retailers like Super Target, Wal-Mart
which succumbed to the economic recession. Another discount store set up by Eugene as E.J.
Korvette, which is often cited as first discount store which did not raise from 5 & 10 cents roots and
eventually declared bankruptcy due to inability to compete with the new entrants.

Porter (2002) states that combination of operational effectiveness and strategy is essential for
superior performance which is the primary goal of any organization. He also says that a company can
perform its rivals only if it can operate in different ways which are not in practice. Much emphasis had
been laid on strategic positioning like variety based positioning, needs – based positioning and access
based positioning.

Along with Wal-Mart, other stores that started operating were Target, Woolworth (Woolco)
and K-Mart. However, Target has been functioning successfully, courtesy Wal-Mart, but other two
failed in their operations and filed bankruptcy.( Michael Bergdahl, 2004) Porters five forces model
explains what strategic decisions should be made and on what basis. The model explains the basic
strategies to be considered while starting a business like bargaining power of suppliers. While
franchising of Franklin he always looked for cheaper deals and thought of passing his savings to the
customers and earning through the margin on volume of bulk purchases. Through the way of discount
stores, shoppers were given the cheapest price as compared to any other store. In regard to threats
of new entrants, Wal-Mart has been constantly in the news for acquisition of other small retail shops in
view of its expansion. But nevertheless it has stiff competition from likes of Super Target, Tesco, etc.
it is the world’s biggest retail industry.

II. Key Components of Wal-Mart Business Model

Wal-Mart is the leader in retailing industry with fiscal revenue of $244.52 billion in 2003
making it the world’s largest corporation. Mike reports that Wal-Mart as of 2002 had 1,283,000
employees growing at 11.2%. The above data explains that strategy of Wal-Mart is extraordinary
which manages and operates over 4150 retail facilities globally. The key components of Wal-Mart (The
Value Chain), which offers cheap prices than its competitors includes firm infrastructure like frugal
culture, no regional offices and pleasant environment to work. Managements take lots of visits and it
is learnt there are no rehearsals before any meeting which is usually scheduled on every Saturday. In
any organization, human resource is the key to development and Wal-Mart efficiently manages its
sources. Wal-Mart terms its employees as associates. Manager compensation is linked to the profit of
store operated by him, within promotions, compensation offered to associates depending on
company’s profits and also offered some incentives on their performances. The workforce at Wal-Mart
is not unionized as the company takes all the measures of their benefits and provides them training on
related issues. Technology plays a vital role in development of the organization and Wal-Mart is well
equipped with technological innovations like POS, store performance tracking, real time market
research, satellite system and UPC. Wal-Mart procurement measures like hard-nosed negotiations,
partnerships with some vendors, centralized buying, planning packets, etc. helps at large the cause of
providing the goods and services on cheap prices. The other factors that increase the margin of profit
for Wal-Mart are inbound logistics with frequent replenishment, automated DCs cross docking, pick to
flight, EDI, hub and spoke system. Wal-Mart strategy of operation is innovative with big stores in
small towns with monopoly in the market at low rental costs, local prices, concentric expansion,
merchandising in brand name, private labels, little space for inventory, store within store, etc. In
relation to marketing and sales, merchandising is tailored from locals, spent less on advertising and
the prices are fixed low and it depends on the store manager to fix the latitude of pricing. All the
above factors combined together form the key components of Wal-Mart which not only increase the
margin of profits through bulk sales but also boost the confidence of the customers with services like
point of sale information system and everyday low prices.

III. Wal-Mart Strategy

Wal-Mart dominates the American retailing industry due to number of factors like its business
model which is still a mystery and its effectiveness in not letting the rivals let know about the
weaknesses. Wal-Mart made strategic attempts in the its formulation to dominate the retail market
where it has its presence, growth by expansion in the US and Internationally, create widespread name
recognition and customer satisfaction in relation to brand name Wal-Mart and branching into new
sectors of retailing.

It is learnt that Wal-Mart strives on three generic strategies consisting of Focus Strategy, the
Differentiation Strategy and overall cost leadership. Managers strive hard to make their organizations
unique, distinctive and identify key success factors that will drive the customers to buy their
products.Thus, firm specific resources and capabilities are crucial in explaining the firm’s performance.
The Resource Based View (RBV) explains competitive heterogeneity based on the premise that close
competitors differ in their resources and capabilities in important and durable ways. The company’s
capability can be found through its functionality, reliable performance, like Wal-Mart superior logistics.
(Helfat, 2002) Wal-Mart has firm infrastructure, well equipped in human resource with management
professionals and technologically too.

Any organizations thrive hard to be successful for which it needs to have better resources and
superior capabilities. Wal-Mart has strong RBV with economically and financially very strong enough to
stand still in the time of crisis. Pereira states that dominating the retail market is its key strategy.
Wal-Mart operates on low price strategy which is operated as every day low prices (EDLP) which builds
trust among the customers.(Brunn, 2006)The strategy lies in purchasing the goods at lower prices and
selling the goods to customer at much lower prices, cutting the price as far as possible and increasing
the profit by increasing the number of sales. This ferociously increases the competition in the market
and Wal-Mart competes with all its competitors till it is dominant it the market.

Wal-Mart is expanding seriously and rapidly which is also its strategic goal. Wal-Mart employs
over 1.3 associates, owns over 4000 stores out of which 3000 are in US and serves around 100 million
customers weekly. Wal-Mart has acquired many international stores and merged with some super
stores like ASDA in UK. Wal-Mart far flung network of retail outlets has ensured that Wal-Mart
interacts with and has impact on virtually every locality within US. (Helfat, 2002) The expanded
strategy has led the hunger of Wal-Mart to many European Countries. It is learnt that three countries
with no Wal-Mart stores became part of corporation’s international presence wherein the domestic
retail chains were taken over by Wal-Mart including 122 Woolco stores in Canada, 21 Wertkauf stores
in Germany and 229 ASDA units in United Kingdom. The takeover strategy by Wal-Mart keeps the
company at forefront when entering into the new market and the number of competitors is also
minimized. The strategies have helped the Wal-Mart to rein in number one position in international
countries making it the largest retailer in the world.

It is seen that Wal-Mart has significantly the Porters five force model wherein through proper
strategic planning and strategic implementation has led to removal of barrier entry, rivalry from
competitors and pricing norms. In regard to substitutes, Wal-Mart in order to achieve its aim of
customer satisfaction has selling goods under its own legal brand. Wal-Mart’s big box phenomenon
has changed the retailing industry in the United States which is often considered as discount stores
and makes profit through high volume of purchases and low markup on profits.(Parnell, 2008)Wal-
Mart with its low cost and ever expanding strategy has made a dramatic impact since 1962 when Sam
Walton first started his business. With this strategy, Wal-Mart has now over 4000 stores and outlets in
US and other countries through acquisition and mergers.

IV. Sustainability in Discount Retailing – Wal-Mart

 According to Porter, (2002) operational effectiveness and efficiency are the key elements of
success in any organization. A company can outperform its rivals or competitors in the market only
with superior management and efficient control creating a difference from the others which eventually
attracts customers. Porter defines operational effectiveness as performance of similar activities as its
rivals but better than them. In a study, it is stated the Wal-Mart is expert in manipulating perceptions.
It is termed that low price is not the strategy of Wal-Mart but the advertisement manipulates the
consumer perceptions by making them think that its prices are lower than its competitors’ price using
‘price spin’. Wal-Mart makes the consumer addicted coming to its stores by convincing them the prices
are lower than in the other stores by selling itself cheaper by advertising that ‘we have lower prices
than anyone else’ and placing a ‘opening price point’. The ‘opening price point’ is the lowest price in
the store which is kept at high visibility which makes consumer believes that the products in this store
are really cheaper. (Race Cowgill, 2005)

The SWOT analysis of Wal-Mart reveals that it is most powerful retail brand, reputation for
money, value, commitment, and provides wide range of products. It is growing at a brisk pace with
expanding its horizon to other parts of world through acquisition and merger. Wal-Mart has good
opportunities in markets of Europe and China and focuses on acquiring the market through acquisition
of smaller stores and merger with leaders in the specific markets. Wal-Mart is always under threat to
sustain its top position in market nationally and internationally. Global leader in the industry leaves
the organization vulnerable to many socioeconomic and political problems of the country.

Sustainability at the top place is the most important job that makes its managers strives hard
to frame the policies and strategy to compete with its rivals in the market. Slack, Imitation,
Substitution and Hold-up are some of the threats to any organization in retail industry. However, Wal-
Mart with its visionary goal of attaining zero waste status and reaching 100% renewable energy has
planned to launch number of sustainability initiatives. (GreenBiz, 2008) Imitation increase profits by
increasing the supply. But imitation puts reputation, relationship at stake. James Hall reports that
Wal-Mart is planning to open convenience stores as Tesco has started and operating in US called Fresh
& Easy Neighborhood Markets. (James, 2008) Such tactics will create mixed response among the
consumers while degrading the reputation of the leader in market. Substitution reduces the demand
for what a firm uniquely provides by shifting the demand elsewhere due to changes in technology. The
threats of substitution can be subtle and unexpected like minimizing expenses through
videoconferencing instead of air flights to long distance meetings with its managers of other stores,
etc. Therefore, substation is an especially effective way of attacking dominant rivals in the market.
Substitution offers mixed responses after identifying and understanding the threats. The organization
should fight the threat and merging with them, switching to different options of substitution to be in
the market. Hold-up diverts the value to customers, suppliers or complementors who have some
bargaining leverage which results in tough negotiations, contractual agreements and vertical
integration.

Wal-Mart is having great network with almost over 7800 stores and Sam’s Club locations
in 16 markets worldwide. It employs more than 2 million associates and serves more than 100 million
customers every year. According to Fishman (2006) Americans spend $26 million every hour at Wal-
Mart which makes it believable that Wal-Mart is financially very strong and is capable of combating
any threat from its rivals in the market. Wal-Mart is ever expanding its boundaries by way of
acquisition and mergers. Thus Wal-Mart with such a vast network of stores and alliances in the forms
of ASDA, Target and many other stores is well protected enough to sustain its top position in the retail
industry.
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Yamaha's turnaround strategy

Reeling under operating loss of Rs 336 crore in 2007, Yamaha India is adopting a turnaround
strategy involving structural, financial and marketing fronts.
By Overdrive Team

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Reeling under operating loss of Rs 336 crore in 2007, Yamaha India is adopting a turnaround strategy involving structural,
financial and marketing fronts. For starters, Japanese trading company, Mitsui will take up a 3 per cent stake in Yamaha and
contribute 30 per cent of the Rs 696 crore capital investment Yamaha India is going to make to shore up its finances. Parent
company Yamaha Motor Corp (YMC) Japan is fully supportive of the revitalisation plan of its Indian arm and will be pumping
in funds to the tune of Rs 800 crore in the coming 3 years to wipe out accumulated losses of the Indian subsidiary, since
2001. In return, YMC has asked Indian arm to get its act right in terms of its portfolio and marketing and pick up a 10 per
cent share of Indian motorcycle sales by 2010.

Yamaha India currently sells 100cc Crux, 106cc Alba and 125cc Gladiator, all of which together accounted for a dismal 3.2
percent (2.1 lakh units) of the total 65.5 lakh motorcycles sold in 2006-07. The company on its part is planning to cash in on
the current market sentiment of increasing tilt towards premium bikes, sales of which are growing y-o-y at 5 per cent even as
the total motorcycle sales in 2007-8 have plunged by 12 per cent in the first ten months of the FY. Premium bike sales have
in the meanwhile leaped up to over 15 per cent of total sales during 07-08 and are said to be still climbing. Yamaha India
two upmarket 150-cc models R15 and FZ, modelled after Yamaha’s highly successful 1000cc superbikes R1 and FZ1000.
It is a long haul for Yamaha India with no miracle cures in sight. Morgan Stanley analysts in their report do not see Yamaha
India achieving its target of lapping up 10 per cent market share of total motorcycle sales by 2010. The analysts see
Yamaha India selling 4,00,000 units by 2010 and ending up with operating loss of Rs 290 crore. Not a happy picture!
Yamaha India division head (Operations) Om Prakash has announced setting up of a finance arm of the company to
‘support dealer and sales network in India’ in its bid to finance its products at a time financial institutions are scaling down
their exposure to two-wheeler loans in the face of rising delinquency rates.