Executive Summary
First case study is about Wal-Mart
Wal-Mart which has grown to become the world’s largest corporation.
And also it is one of the most extraordinary success stories in business history. Wal-Mart
strategies produced superior performance from 1994-2008 as result, Wal-Mart has enjoyed
competitive advantage over its rivals. This case study gives a clear understanding about the
strategies applied by Wal-Mart achieving superior performance within the industry. Founded by
Sam Walton in 1962 in Bentonville, Arkansas, Wal-Mart stores offered customers a broad range
of goods. Those strategies enable the company to lower the cost structure, charge low prices,
gain market share and become more profitable than its rivals. In its first year, Wal-Mart Stores
garnered $700,000 in sales, which increased to $5.4 million in sales volume by 1974.
Second case study gives a general overview of the large civil aircraft market, by presenting the
leaders: Airbus and Boeing. Further, the historical backgrounds were analyzed: The dispute has
begun since Airbus was created in 1965, specifically to drive the US competitor Boeing out of
the market. Based on this thesis, the assignment examines the duopoly-position considering the
economic backgrounds. A number of key issues arise especially from Boeing’s side. Boeing lost
his dominant role on the market. Furthermore, Airbus delivered very high innovative
technological standards, by keeping the costs low. It did not take long time until Boeing has
responded by blaming Airbus to get subsidies from the government
Third case study gives a general
gen eral overview of Verizon's Wireless business is one of the compan
company's
y's
strongest assets. Since the year 2000 the company has invested over $80 billion in order to
increase the coverage and the capacity of its network. The company also focuses on providing
innovative and new technologies before its competitors to keep its clients productivity levels on
target and convenience levels at all-time highs. In order to keep clients happy, Verizon Wireless
also has invested heavily in services and self service tools to continue its reputation of strong
customer service. The wireless division also has more than 1,900 retail locations and various
kiosks across the country in addition to its strong online and call center presence to continue its
reputation for great customer service.
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Case: 1
The Evolution of Wal-Mart
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Question # 1
What was Sam Walton’s original strategic vision for Wal-Mart? How did this
enable the company to gain a competiti
competitive
ve advantage?
In 1962, Wal-Mart was one of the first companies to apply the self-service supermarket business
model developed by grocery chains to sell general merchandise. Wal-Mart concentrated on
small, southern towns that were ignored by its rivals and which had enough demand to support
one large discount store, while others focused urban and suburban locations.
Walton realized that, in rural America, people would drive an hour to Wal-Mart in a small town
rather than drive 2 to 3 hours to a major city. This meant that a small town with a population of
25,000 actually had a catchment area containing 100,000 people. Wal-Mart grew quickly by
pricing its products lower than those of local retailers, often putting them out
ou t of business. By the
th e
time its rivals realized that many small towns could support one large discount general
merchandise store, Wal-Mart had already pre-empted them and had spread out to small towns
across America.
Wal-Mart
Wal-M
art Inc.’s corporate vision is to “Be THE destination for customers to save money, no
matter how they want to shop.” This vision was officially articulated in the company’s 2017
investment community meeting. The company’s previous vision statement was “To be the best
retailer in the hearts and minds of consumers and employees.” The change in the corporate vision
reflects strategic changes that Wal-Mart implements in response to changes in the competitive
landscape and the overall condition of the retail industry.
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In the past, the company’s corporate vision was to become the top player in the industry. At
present, Wal-Mart’s
Wal-Mart’s vision statement includes the same aim, but with emphasis on business
flexibility in accommodating customers. For example, the “no matter how they want to shop”
component indicates the company’s strategic objective of achieving leadership in traditional
brick-and-mortar transactions and in online retail transactions. The same change, however,
highlights the removal of “employees” as a ma jor component in Wal-Mart’s
Wal-Mart’s vision statement.
This shift represents a possible reduction of support for employees. The
Th e shift could reflect human
resource management issues, considering that employees are a major stakeholder group relevant
to Wal-Mart’s
Wal-Mart’s Corporate social responsibility strategy and stakeholder management. Wal-Mart
Inc. (formerly Wal-Mart Stores, Inc.) is one of the largest retailers in the world in terms of
revenues and number of employees. With millions of employees worldwide, the company is an
example of effective human resource management (see Wal-Mart’s
Wal-Mart ’s Human Resource
Management). From its beginnings in Arkansas in 1962, the company developed its retail
business with sound financial strategies to achieve its current
current global position in the industry.
The year 1962 was called the year of discounting. Hundreds of discounting stores popped up
over the whole of USA. In the same year, three big companies started their discount chains in the
same year. One company called Woolworths opened gigantic stores. Everyone thought that
Woolworth’s chain of stores would conquer the world. But the company vanished from the scene
in few years. The other company, K-Mart entered discounting with a big bang. The third
company, Dayton-Hudson
Dayton-Hudson opened its first ‘Target’ store in a big city. All the three were giants
and people were looking forward to their growth. And then one guy started a small discounting
store called ‘Wal‘Wal-Mart’ in a small town called Rogers, Arkansas.
a. Basic Retail Concepts
Wal-Mart is formulated around four retail concepts. The first concept is the basis of the company
is left over on its discount stores, which have been following the same pattern since the
company’s foundation. The second concept is that it combines Wal -Mart supercenter with a
discount store. The third concept is the Wal-Mart neighborhood market that provides the services
of a traditional grocery store. The fourth concept is the Sam’s Wholesale Club, which is
intrinsically a membership warehouse store that accomplishes a continually changing
chan ging inventory.
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b. Drive out costs
Wal-Mart
WalMart plan has been to retrieve the costs out of the stores, from the manufacturers’ profit
margins, merchandise brokers and other middlemen by reducing the prices at the retail level.
Driving out costs has been formed by maintaining partnerships with vendors, proper selection of
store locations, knowing the numbers, knowing its competition and
a nd by taking care of customers.
c. Economies of Scale
As a big firm, Wal-Mart has achieved economies of scale. As Wal-Mart is a big company and
has many locations, unit costs have decreased and any other firms wishing to enter the market
must do so at a large scale. This makes very difficult, if not impossible for new entrants.
Although economies of scale provide a apparent competitive advantage, emulating firms will
look for becoming larger to minimize the role of economies of scale. This iiss the reason Wal-Mart
has to constantly innovate and look forward for new competitive advantages.
d. Pricing strategy:
This is the key strength of the brand upon which its entire business model rests. It has not just
helped it build a great brand image that is popular for its low costs model but also a large
customer base. Having a large customer base is a critical strength but it is not possible unless you
have an attractive value proposition.
e. Customer service:
Wal-Mart has not built a vast empire without being obsessed for customers’ convenience. Apart
from lower prices, it is also known for its focus on customer experience. You do not just get
good quality products at low prices but in fact shopping at Wal-Mart is also a distinct experience
in itself. It has also framed attractive returns policy for the sake of customer convenience where
people can return a product within 90 days with or without a receipt. It is investing in digital
tools to continuously improve customer experience which has also led to high sales. Sales at the
Sam’s club have improved year on year and more of its members are using digital tools like Scan
& Go and Club Pick up. The brand is investing in both digital technology and HR for improved
customer service and an overall great customer experience.
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Question # 2
How did Wal-Mart continue to strengthen its Competitive advantage over
time? What does this tech you about the source of a long-term Competitive
advantage?
Over time, the company became an innovator in information systems, logistics, and human
resource practices. Actions taken in these functional areas resulted in higher productivity and
lower costs as compared to rivals, which enabled the company to earn a high ROIC while
charging low prices. Wal-Mart led the way among U.S. retailers in developing and implementing
sophisticated product-tracking systems using bar-code technology and checkout scanners. This
information technology enabled Wal-Mart to track what was selling and adjust its inventory
accordingly so that the products found in each store matched local demand. By avoiding
overstocking, Wal-Mart did not have to hold periodic sales to shift unsold inventory. As WalMart grew, its sheer size and purchasing power enabled it to drive down the prices that it paid
suppliers and to pass on those savings to customers in the form of lower prices –which enabled
Wal-Mart to gain more market share and hence lower prices even further.
It taught me that you need to continuously improve and diversify other components - like
information systems, logistics, and human resources - to help power, improve, and sustain the
long-term competitive advantage.
Wal-Mart has become the world’s largest and arguably most powerful retailer with the highest
sales per square foot, inventory turnover, and operating profit of any discount retailer. You only
have to look at Wal-Mart stock history stats to see the success and influence it has had in the
retail space. In its transition from regional retailer to global powerhouse, the organization has
become synonymous with the concept of successful supply chain management.
I don’t believe there is a university in the world that doesn’t talk about Wal-Mart and the supply
chain,” said James Crowell, director of the Supply Chain Management
M anagement Research Center at the
Walton College of Business. “They are just so well respected because they do it so well.”
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Wal-Mart began with the goal to provide customers with the goods they wanted, whenever and
wherever they wanted them. The company then focused on developing cost structures that
allowed it to offer everyday low pricing. Next, Wal-Mart concentrated on developing a more
highly structured and advanced supply chain management strategy to exploit and enhance this
competitive advantage and assumes market leadership position.
a. Fewer links in the supply chain
Even in its early years, Wal-Mart’s
Wal-Mart ’s supply chain management contributed to its success. WalMart’s
Mart
’s supply chain innovation began with the company removing a few of the chain’s links,
right from the very beginning. Founder Sam Walton, who owned several Ben Franklin franchise
stores before opening the first Wal-Mart in Rogers, Arkansas in 1962, selectively purchased bulk
merchandise and transported it directly to his stores.
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b. Wal-Mart inventory innovation: Strategic vendor partnerships
Wal-Mart has long practiced strategic sourcing to find products at the best price from suppliers
who are in a position to ensure they can meet demand. The company then establishes strategic
partnerships with most of their vendors, offering them the potential for long-term and high
volume purchases in exchange for the lowest possible prices.
c. When does Wal-Mart restock? Cross-docking as an inventory tactic
Cross-docking is a logistics practice that is the centerpiece of Wal-Mart ’s strategy to replenish
inventory efficiently. It means the direct transfer of products from inbound or outbound truck
trailers without the need for extra storage, by unloading items from an incoming semi-trailer
truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail
cars (and vice versa), with no storage in between.
d. Supply Chain Management Success - Wal-Mart Trucks
Wal-Mart’s
Wal-Mart
’s truck fleet of drivers continuously deliver goods to distribution centers (located an
average 130 miles from the store), where they are stored, repackaged and distributed without
sitting in storage. Goods will cross from one loading dock to another, usually in 24 hours or less,
and company trucks that would otherwise return empty “backhaul” unsold merchandise.
e. Investing in advanced inventory technology
In its relentless pursuit of low consumer prices, Wal-Mart embraced and invested in technology
to become an innovator in the way stores track inventory and restock their shelves, thus allowing
them to cut costs. In 2015, the company spent a reported $10.5 billion on information technology
and has also invested significantly in improving their E-Commerce capability.
cap ability.
f.
Supply Chain Management Success - Wal-Mart Warehouse
Suppliers and manufacturers within the supply chain synchronize their demand projections under
a collaborative planning, forecasting and replenishment scheme, and every link in the chain is
connected through technology that includes a central database, store-level point-of-sale systems,
and a satellite network.
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g. Increasing focus on Customer Services
In February 2015, the company announced a USD1 billion investment in U.S. hourly associates
to provide higher wages, more training and increased opportunities to build a career with WalMart.
h. Improving Groceries
Due to increasing level of health-consciousness of consumers, Wal-Mart is attempting to
increase its range of organic options and fresh produce. This change is more evident in the US
market and it is being actively integrated into marketing communication message of the brand.
i.
Enhancing the flexibility of the shopping experience
It has been
been noted that “Wal-Mart
“Wal-Mart is working to integrate its physical stores with the digital
business”.. For example, thanks to the latest changes, customers are able to collect their online
business”
orders from stores and they can also get text reminders from the pharmacy.
Generally, Wal-Mart competitive advantage can be sustained in the global marketplace in longterm perspective. ‘We operate for less’
less’ and ‘We Buy for Less’ programs saving us USD150
million in China. The company can replicate this strategy to other markets in order to gain and
sustain its cost advantage….
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Question # 3
By the early 1990s, Wal-Mart was encountering limits to growth in the US.
How did it overcome these limits to growth? Explain how the expansion
moves that Wal-Mart made in the 1990s made economic sense and helped to
create value for the company’s shareholders.
They diversified and moved into other areas of business like the grocery business and warehouse
club business. They established supercenter stores that also sold groceries, while also creating
Sam’s Club. They also began expanding internationally starting in Mexico.
It allowed the company to continuously differentiate themselves from their competitors, giving
customers reasons to not only stay loyal but gave them a one stop shop for all their needs. It also
established a new foreign market which allowed them to see sales and profit from places across
the world, which now generates $175 billion.
By the early 1990s, Wal-Mart was encountering limits to growth in the US. How did it overcome
these limits to growth? Explain how the expansion moves that Wal-Mart made in the 1990s
made economic sense and helped to create value for the company’s shareholders.
Wal-Mart overcame these limits by diversifying into the grocery business. This allowed
groceries and merchandise to be sold less than one roof, which was more convenient for
customers. It also diversified into the warehouse business with Sam’s Club. These expansion
moves made sense as they allowed more convenience for customers, while giving Wal-Mart
more profit lines.
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Becoming global is never exclusively the result of a grand design, though certainly it cannot be
the result of incremental, ad hoc, opportunistic and random moves. The wisest approach would
be one of "directed opportunism" - an approach that maintains opportunism and flexibility within
a broad direction set by a systematic framework.
One of the best examples of the power of an explicit and systematic process to analyze the
complex set of factors involved in becoming a global player is Wal-Mart Stores Inc., the largest
retailer in the world. The company, which opened its first international store (in Mexico City) in
1991, now operates in all 50 states, Puerto Rico, Canada, China, Mexico, Brazil, Germany,
Britain, Argentina and South Korea. Of a work force of more than 950,000, it had more than
130,000 employees working in 729 facilities outside the United States by July 1999.
Until its recent move into supermarkets, the retailer operated three types of outlets: 1) Wal-Mart
stores, which offer clothing, linens, small appliances, hardware, sporting goods and similar
items; 2) Sam's Clubs, which offer bulk items to customers who purchase warehouse
memberships, and 3) Supercenters, which combine the inventories of a discount store with a fullline supermarket.
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Wal-Mart has pursued globalization aggressively since its first move across the border in 1991.
(See Exhibits I to III.) In 1993 just 1 percent of all Wal-Mart stores were located outside the
United States. By 1998, that had grown to 18 percent. Between 1995 and 1998, 5 percent of the
company's growth in sales and 4 percent of its growth in profits came from international
operations.
a. Globalization Imperatives
Did Wal-Mart need to go global? Clearly, it had developed a successful business model for
competing in the United States. Why not just prosper as an American retailer? The answer is that
the company needed to grow in order to survive, and the international arena was the only one in
which significant growth was possible.
Why was growth so important? First, the company needed to show increases in both sales and
profits to satisfy capital market expectations. Second, it needed to satisfy the expectations
ex pectations of its
own employees. One of the key factors in Wal-Mart's success was its dedicated and committed
work force. Thanks to Wal-Mart's stock purchase plan, the wealth of these employees was
directly tied to the market value of the company's stock, creating a direct link between growth
and its effect on stock price and company morale.
Given the necessity for growth, Wal-Mart could not afford to confine its operations to the United
States for three reasons. First, it had already saturated most of the domestic markets. Second, the
United States accounts for just over 4 percent of the world's population. By limiting itself to this
market, Wal-Mart was missing out on 96 percent of the world's potential customers.1 Finally,
emerging markets, with their lower levels of disposable income, offered huge platforms for
growth in discount retailing. Other companies had already capitalized on such growth thanks to
the rapid expansion of information technology, increasing cultural homogenization and lowered
trade barriers.2 Wal-Mart had no choice but to pursue globalization aggressively to meet this
competition.
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Question # 4
Wal-Mart is once again encountering limits to growth. Why do you think this
is the case what might Wal-Mart do to push back these limits?
This is the case because the U.S. market is saturated, and the growth overseas has proved to be
more difficult. The moved into the suburban markets where they faced significant competition
that didn't allow them to grow like the did before. They were forced to exit Germany and South
Korea after losing money there. They are also struggling in several developed nations. I think
this is the case from the saturation and possibly because of customers wanting an improvement
in quality and become unfocused on the high profitable areas from stretching their empire and
footprint into so many areas, countries, and markets.
Refocus their strategic vision and positioning, focusing on the highly profitable areas. They may
have stretched too far and been too greedy with expansion and planning with these different
markets and businesses they become involved in.
Wal-Mart is encountering limits to growth within their chosen industries, as there are only so
many consumers within America. Wal-Mart should consider diversifying into more profit lines,
such as whole food stores in order to push back at these limits.
For fifteen years(Before Wal-Mart), Sam had been running a chain of independent variety stores
in smaller towns. Those stores gave the revenues of $1.4 million by 1960s. Things appeared fine.
But Sam felt otherwise. He and his team had been working very hard but the business itself
seems to be of limited growth. He could not push the sales beyond a limit. He felt that he had to
find an idea with a better payoff for all their efforts.
Observe, Observe, Empathize—Sam did a detailed research and found out that the future
appeared to be headed towards ‘discounting stores’. He saw how some larger stores were doing
revenues of more than $2 million from each store compared to $1.4 million from Sam’s 15
stores. He visited many discounting stores all around the country and studied the concept indepth. It was clear that discounting would go and dominate the market. “Buy it low, stack it high,
sell it cheap” was the guiding princ
p rinciple
iple of discounting.
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Capabilities—Sam thought a lot about the type of customers he had to target, where the
competition would be weak and where he would have enough strengths to gain the market share.
He had been running variety stores in small towns where the population was around 6000. Sam
lived like one among his consumers in the small community. His everyday interaction with the
people of town gave him a sound knowledge of the User behavior, their needs, desires, and
wants. His strength was ‘Knowledge’ about the small town users and he was pondering how he
could apply that strength to the most promising opportunity?
Weak Market Forces—Kmart and other bigger retailers were not going to towns below 50,000
populations. Other medium-size brands like Gibson did not go to towns below 12,000
populations. Nobody was ready to provide products at discounted prices to the people living in
small towns. But people in smaller towns were well aware of the ‘discounting stores’ as they had
friends and relatives in the cities and some of them had even visited those stores. So, the
awareness was there. So, Sam Walton was convinced that opening a Wal-Mart store in a small
town would be a viable business model.
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Question # 5
How much of Wal-Mart’s
Wal-Mart’s strategy do you think was planned at the outset and
how much evolved over time in response to circumstances? What does this
suggest to you about the nature of strategy development?
I think some of the strategy was planned at the outset, specifically expansion into other countries
and markets. After dominating the U.S. market, they could use some of those strategies to help
penetrate the markets in those other countries like Mexico to successfully expand their footprint
and maintain that competitive advantage. Also the grocery business may have been a result from
evolution over time, but with their sophisticated product-tracking
product- tracking and “everyday low prices”,
they could use that information to easily implement new products through the grocery business.
It revealed how strategies can continuously be improved and altered in order to sustain the
success and competitive advantages a company currently has. It also showed how strategy is
what you actually do rather than what you want to do. Wal-Mart failing in some areas could have
also been a result of the staging and timing. They could have an inefficient strategy developed
for these overseas markets that led to losing money and having to pull out. Which would force
Wal-Mart to redevelop or update their strategies?
The first and foremost factor for sustainable competitive advantage is to position your brand
inside a consumer’s mind. The ways to enter their mind is
a. Becoming a leader in an existing product/service category(It would need huge
investments in money, effort & time and not a practical option)
b. Becoming first in any new product/service category. In other words, you need to create a
new category.
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Finding a Niche Market. One of the formulas for positioning your brand in consumer’s mind is
to start in a small market. Focus on a particular need, work on it, make your product distinctive
and dominate the niche market. Smaller the segment, it is easier for the entire company to focus
and meet the customer needs, wants and desires. Once you become a leader in the niche market,
you could move to the larger markets. If you want your people to take care of the customers, you
have to take care of the people in the stores.
Employee Works, Partner Owns—Sam considered people working in his stores, warehouses as
partners and called them ‘associates’ rather than employees. He believed that the more he shared
profits with his associates, the more profit the company would gain. Other than sharing the
profits, Sam gave incentive bonuses, discount stock purchase plans and health benefits to his
associates. If the company could treat the associates well, then the associates would treat the
customers well. If the customers were treated well, then they would visit the store again and
again. Real profits in business lie in ‘repeat customers’.
Sam wanted
wanted to extend ‘Best Customer Service’ to WalWal-Mart’s customers too. To provide the best
service, he encouraged his employees to think and act like the customers. Even while arranging
the merchandise, he would ask his employees to act like a customer and see how it would
improve the experience.
Thus, Wal-Mart’s
Wal-Mart’s guiding principle was ‘Low Price’ and ‘Satisfied Customer Service’ which
included a Wide assortment of good quality merchandise, friendly service, convenient hours and
a pleasant shopping experience.
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Case 2:
The Market Large Commercial Aircraft
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Question # 1
Explain why the wide-bodied segment of the large commercial jet aircraft
industry can only profitably support two players at present. What are the
implications of your answer for barriers to entry into this segment?
Total sales
30000
25000
24084
22271
20568
20540
20000
Boeing
15000
13705
Airbus
10000
7702
5000
4294
7647
8437
4683
0
1989
1990
1991
1992
1993
Because it has been assumed that the high development cost associated with bringing new
commercial jet aircraft to market, and the need to realize substantial economies of scale to cover
these costs, has worked as barriers to new entrants.
As demand rises rapidly, it is showing the opportunity for other companies to take the risk and
profit. However, this will drive down prices because airline business competition is fierce
because customers just want the cheapest flight.
The industry is expected to grow rapidly, so be more profitable, so it is attracting more
newcomers like Comac, Bombardier, and Embraer. Government regulations plays a role,
especially for Comac. Comac can count on orders from Chinese airlines and the tacit support of
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the Chinese government to help their business get started. However, they discussed the
economies of scale, how Boeing spends $18-$20 billion to develop its latest aircraft, the wide
bodied Boeing 787. Now the three new competitors are developing smaller narrow-bodied jets
but the cost for newcomers is extremely high, which also leads to less customers and higher
costs.
Bombardier and Embraer can leverage the know how they developed manufacturing regional jets
to help them move up market.
a. The wide-bodied segment of the large commercial jet aircraft industry can be only
profitable for Boeing and Airbus due to the extremely high entry barriers
reinforced by substantial economies of scale, and high customer switching costs.
(absolute cost advantage). The costs and risks of entering the wide-bodied
segment industry are so high that no other company can afford competing with
Boeing and Airbus. Simply put, only these two aircraft producers have resources
to develop and bring new wide-bodied jets into the market. In addition, the
demand for the products needs to be high so that the companies can see profitmaking opportunities in developing new aircraft. In fact, it may take 10 years for
Boeing to break even on their latest Boeing 787. Provided that the demand for
Boeing is much higher than for its competitors (excluding Airbus), it would take
Comac or Bombardier even longer to make any profit on the investment. These
high entry barriers effectively keep potential competitor out of the large
commercial aircraft segment.
I.
The wide-bodied segment of the large commercial jet aircraft industry can only profitably
support two players at present due to the costs, risks and long-time horizon. The high cost
of producing and maintaining these planes creates a high barrier to entry into this
segment.
II.
No, entry barriers into the narrow-bodied segment aren’t the same as the wide bodied
segment. Three new entrants have appeared in this area because all three producers
believe that the market for narrow-bodied aircraft is now large enough to support more
than Boeing and Airbus.
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III.
In the future, I believe that competition, and even a price war may ensue. Many people
are starting to travel more, but are looking for prices that won’t break the bank. Due to all
of these new entrants, I see the industry doing well. Each entrant will hav
havee something that
sets them apart from the other, which can lead to all five companies producing the best
planes yet.
IV.
If I were a new entrant into the bottom part of the narrow-bodied industry, my long termdevelopment strategy would focus on quality and price. I would focus on areas of the
world that Boeing and Airbus haven’t completely dominated, and also target smaller
airlines, such as Ryanair.
V.
Boeing and Airbus can deter further entry into this industry and possibly keep new
entrants boxed into the bottom end of the market by really focusing on their design. They
can focus on fuel efficiency and maintaining their household name. Research and design
can be employed to keep them ahead of the game.
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Question # 2
Are entry barriers into the narrow-bodied segment the same as those into the
wide-bodied segment? Explain your answer.
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The entry barriers into the narrow-bodied segment seem to be much lower than the entry barriers
into the wide-bodied segment. This statement can be supported by the recent changes in the
competitive landscape of the narrow-bodied segment. In fact, in last years, three new companies
entered the industry offering smaller narrow-bodied jets. In fact, these new entrants (Comac,
Bombardier and Embraer) have recognised the increasing demand for narrow-bodied jets.
Importantly, the entry barriers into this segment are still extremely high but they are more
attainable than the entry barriers into the wide-bodied segment. This is particularly applicable to
Bombardier and Embraer which can use their supplier contacts and experience from developing
and manufacturing regional jets and consequently, achieve economies of scale.
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Question # 3
Given future projections for demand, how do you think the industry as a
whole will do over the next twenty years? How might your forecast differ for
the wide-bodied and narrow-bodied segments?
Since Boeing predicts that over the next 20 years the airline traffic will continue to grow at 5 %
per annum, the aircraft industry will keep growing at a steady rate. Taking into consideration the
growing interconnection between countries (and regions within countries), people will most
likely increase the number of business and leisure plane trips during the next twenty years.
Nevertheless,the growth may not be even for the wide-bodied and narrow-bodied segments. The
Th e
increasing number of domestic flight worldwide will increase demand for narrow-bodied aircraft.
This trend can be demonstrated by the high number of orders for smaller narrow-bodied jets
produced by Comac,
Co mac, Bombardier and Embraer. If these three companies keep growing over the
next decades, they may create a significant pressure on the profits of Airbus and Boeing. In
regards to the forecast for the wide-bodied aircraft, the demand will keep increasing but at a
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slower rate than for the narrow-bodied segment. In addition, if the profits of Airbus and Boeing
start stagnating or decreasing, these two current industry leaders will be less willing to develop
new models of wide-bodied aircraft since the cost is extremely high. In addition, there will be a
great focus on improving fuel efficiency in both narrow-bodied and wide-bodied segments.
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Question # 4
If you were a new entrant into the bottom part of the narrow-bodied industry,
as are Comac and Bombardier, what would be your long- term development
strategy?
The long-term strategy would be to develop an expertise in the narrow-bodied industry, create
substantial economy of scale and gain customer loyalty. Once achieved, the companies should
focus on improving their narrow-bodied aircraft, paying a special attention to fuel efficiency.
Even if these new entrants keep growing and developing successfully, it will be extremely had
directly compete with credible and reputable companies like Boeing and Airbus. Hence, new
entrants may consider joining forces and creating alliances in order to become more competitive.
In addition, new entrants should not rush into the wide-bodied segment. In fact, developing and
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bringing into the market large jet aircraft is extremely costly and can be achieved only through
economies of scale and absolute cost advantage (also brand loyalty).
loyalty). Once Comac or Bombardier
achieve a strong brand position, they may consider developing wide-bodied aircraft.
Nevertheless, new entrants should carefully monitor the external environment that may create
some new opportunities (mainly technology innovations) for new entrants.
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Question # 5
What can Boeing and Airbus do to deter further entry into this industry,
and/or keep new entrants boxed into the bottom end of the market (that is,
smaller, narrow-bodied jets)?
In order deter further entry into industry; Boeing and Airbus need to raise the entry barriers by
making it more costly. Simply put, the greater the cost potential competitors (Comac,
Bombardier) must bear to enter the industry, the greater the barriers to entry, and the weaker
willingness to do so. Both companies should try to increase the customer loy
loyalty
alty by providing
excellent customer service, superior quality and the most innovative products. At the same time,
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Boeing and Airbus can negotiate exclusive contacts with clients and suppliers. As a matter of
fact, selling products in bundles is already a common practice in the industry but the companies
may try to offer bigger bundles (particularly focusing on narrow-bodied jets) by offering a
slightly cheaper price or adding other customer-value factors. This type of tactic should increase
customer loyalty and also increase the switching costs for the clients. If possible, the overall
production of aircraft should also be increased in order to boost the benefits of economies of
scale. Last but not least, both companies should provide their employees with excellent work
conditions and environment in order to boost their job satisfaction so that they will be less
willing to move to Comac or Bombardier.
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Case: 3
Verizon Wireless
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Question # 1
What resources underline Verizon's strong competitive position in the U.S.
wireless telecomm
telecommunication
unication industry?
Verizon Communications Inc., based in New York City and incorporated in Delaware, was
formed on June 30, 2000, with the merger of Bell Atlantic Corp. and GTE Corp. Verizon began
trading on the New York Stock Exchange (NYSE) under the VZ symbol on Monday, July 3,
2000. It also began trading on the NASDAQ exchange under the same symbol on March 10,
2010. The symbol was selected because it uses the two letters of the Verizon logo that
graphically portray speed, while also echoing the origin of the company name: veritas, the Latin
word connoting certainty and reliability, and horizon, signifying forward-looking and visionary.
While Verizon is truly a 21st century company, the mergers that formed Verizon were many
years in the making, involving companies with roots that can be traced to the beginnings of the
telephone business in the late 19th century. Government regulation largely shaped the evolution
of the industry throughout most of the 20th century. Then, with the signing of the
Telecommunications Act on February 8, 1996, federal law directed a shift to more market-based
policies. This promise of a new competitive marketplace was a d riving force behind Verizon’s
formation.
Verizon’s network performance and great customer care has given it a competitive position in
the U.S. wireless telecommunications industry. These things combined have helped Verizon to
maintain the lowest churn rate in the industry.
According to the text, Verizon has several resources that enable the company to have such a
strong competitive position. The primary is the extensive amount of coverage provided from
their reception towers, which “blanket over 95% of the nation.” To couple with this impressive
statistic, Verizon has invested substantial money into another beneficial resource: a wireless,
high-speed, fiber-optic network. Finally, Verizon has a customer care resource, which is an
automated software program that enables Verizon to analyze the call habits of individual
customers and make various recommendations with this data.
d ata.
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From independent research, Verizon has added three other resourcesto the company in the past
few years. In 2015 and 2017, respectively, Verizon acquired AOL and Yahoo to diversify the
company’s interests and to generate an uptick in profitability. Most recently, as of 2018, Verizon
announced the acquisition of Movildata Internacional, a Spain-based provider of commercial
fleet management solutions. The CEO of Verizon Telematics, Andres Irlando, believes this
strategic acquisition “strengthens Verizon Telematics’ market position, accelerates growth and
allows the expansion of our market-leading
market- leading solutions and services.”
It is an American multinational corporation. The company was founded on October 7, 1983. The
company provides information, and entertainment services and products to the general public,
business houses and government institutions. There are two segments in the company - wireless
and wireline. The wireless segment provides wireless data and communication services, whereas
the wireline segment offers video and data communication services and products, like cloud
services, local and long-distance voice services.
The main resources of Verizon, which are the reason behind strong competitive position of the
company, are the availability of a network at almost every place in America, the quality of
service, differentiation strategy that brings uniqueness in the service or product, and high-quality
customer care services. The company also uses penetration marketing strategy in order to secure
a big share in the market.
Verizon Wireless faced challenges in providing accurate tax assignment throughout its business
operations. By implementing Pitney Bowes Software’s GeoTAX® solution, Verizon Wireless
was able to achieve higher efficiency, compliance with federal guidelines, cost savings, and
improved customer service. Verizon now manages tax assignments with an automated solution
that integrates with its existing billing and taxation systems.
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Question # 2
Explain how these resources enable Verizon to improve one or more of the
following: efficiency, quality, customer responsiveness, and innovation.
The Verizon's high-quality network availability satisfies the customers. The quality network
performance minimizes the number of call drops and dead zone areas (No signal areas). Due to
the quality network the company offers a fast internet speed. Verizon's network downloads data
at a very high speed. The company offers good customer-care services wherein the queries of
customers are handled on a priority basis. This helps to build a good customer relationship.
The quality network availability, high-speed download, good customer responsiveness and
penetration pricing
p ricing strategies maintain efficiency and quality of the organization.
org anization. Verizon is the
leading organization in developing 5G wireless technologies. They also protect the business
organization from cyber-attacks.
Due to the aforementioned resources, Verizon can be considered as a high-quality service
provider. Verizon’s wireless network covers 95% of the nation. Their network performance has
improved the quality of Verizon’s services by resulting in fewer dropped calls and d ead zones.
Verizon also offers fast downloads and high-speed data transportation between cell towers.
These factors have resulted in an overall high-quality user experience.
Verizon’s network footprint covers more than half the total landmass of the conti nental U.S.
With its extensive network and client base, the company faced challenges in providing accurate
tax assignments throughout its business operations, given the need to recognize more than
10,000 state and local taxing jurisdictions. Verizon needed to improve its tax management
system. The company was inaccurately taxing customers, losing revenue, and dealing with
penalties and even lawsuits as a result of improper tax management. The company turned to
Pitney Bowes Software for a solution that would enable the wireless provider to more efficiently
and strategically manage tax assignments, as well as integrate with the existing billing and
taxation systems the staff was already using.
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a. Network Performance
This resource allows Verizon to improve on efficiency and quality. Despite, an already
exceptionally low churn rate, indicating that most customers are happy with Verizon’s service,
there is undoubtedly a way to improve. By refining the efficiency/quality aspects, Verizon can
limit the amount of dropped calls for users and dead zone space. Additionally, faster downloads
and highspeed performance is a crucial factor for
fo r luring in and retaining customers.
b. Customer Care
This resource deals primarily with customer responsiveness and quality. Due to Veriz on’s
automated software the individual can have a more personalized experience, which bolsters the
overall quality of the product. Moreover, when a company goes out of its way in the customer
care sector, the customers will be responsive, and a good image/brand can be built.
c. Recent Acquisitions
The recent acquisitions point to Verizon’s desire to innovate. With several major purchases in
the Internet of Things sector and the Telematics portion of the company, Verizon is not just a
service provider. In fact,
fact, Verizon Telematics plans to add Fleetmatics’ REVEAL™ to the
portfolio of software solutions available to Spanish fleet operators. Verizon Telematics provides
world-class vehicle tracking and business intelligence solutions designed to help generate cost
savings, improve productivity and help monitor driver safety for virtually any
an y mobile workforce.
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Question # 3
Apply the VRIO framework and describe to what extent these resources can
be considered valuable, rare, inimitable, and well organized.
Verizon’s network performance and customer care has proved to be very valuable to the
company because these things combined have led Verizon to having the lowest churn rate in the
industry.
Although the market is
is very saturated, these features are rare because
because Verizon’s
network blankets 95% of the nation. They are also very inimitable due to the large coverage area
and software used to improve
improve customer care. These features are well organized and tied together
to provide a low customer churn.
a. Valuable
The three resources listed above for Verizon can all be considered valuable for Verizon. To some
extent, they either exploit opportunities or defend threats
thre ats (sometimes simultaneously).
b. Rare
Most of Verizon’s network performance features can be considered rare,
ra re, but not because of the
resource itself, but rather the scope of the resource. For example, cell phone towers and fiber
optic usage are not unique to any one phone company, however, the sheer volume of cell phone
towers and amount of fiber optic usage provided by Verizon is. By providing so much additional
speed and service a competitive
comp etitive advantage is established, therefore
The argument can be made for Verizon’s network performance to be a rare resource. Likewise,
acquiring Yahoo, AOL and Movildata International all represent rare resources, as no other
company has access to these subsidiaries. However, the customer care portion of the company
discussed in the text does not seem to be a unique facet for a phone company, as all phone
companies have some sort of customer service. Yet, J.D. Power’s ranking system found that
Verizon had faster customer service with greater satisfaction. Thus, the resource generates a
competitive advantage and can be considered rare.
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c. Inimitable
For similar reasons as described above, most of Verizon’s resources are inimitable as it would
cost other companies way too much capital to successfully reproduce the competitive advantage.
How many phone service companies can just buy Yahoo or create a 95% covered network?
AT&T, Verizon’s largest competitor, might be the only entity (aside from China mobile Ltd.)
with this possibility. But the customer service portion may beimitable, and while it seems no
company has been able to serve quite like Verizon, the potential for companies to create efficient
(yet cost-effective
cost-effective schemes) to rival Verizon’s seems possible (unless of course aspects of
Verizon’s customer care are proprietary).
d. Well Organized
The three resources can all be considered well-organized, evidenced by the fact that Verizon has
sustained competitive advantage.
Verizon Wireless implemented the GeoTAX solution, which includes an address standardization
tool to help ensure accuracy of customer addresses. The solution cleanses and standardizes
customer information entered by service staff. This standardized data can then be used to provide
accurate tax jurisdictions for each entry. Additionally, the solution provides quarterly-updated
information on changing boundaries. When inconsistencies do arise, members of the tax
management staff are able to access individual customer data immediately to more-quickly
resolve discrepancies, leading to better taxing practices and improved customer service.
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Question # 4
What must Verizon do to maintain its competitive
competitive advantage going forward in
the increasingly competitive U.S. wireless telecommunications industry?
Verizon will need to ensure that they can keep their prices low to maintain its competitive
advantage in the U.S. wireless telecommunications industry.
industry.
This is
is because the market
market is
saturated and any merger attempts are being blocked by regulators. Companies have maintained
a cost advantage in the past by offering lower costs and more data than their competitors and by
eliminating contracts and fees. Verizon can also continue to maintain its competitive advantage
by continuing to build out and upgrade its network infrastructure.
Can put forward a more lucrative bottom line. Also, Verizon should keep expanding and
improving its coverage and network performance. By perfecting these facets, Verizon will
continue to have a relatively happy customer base. Finally, the company needs to keep striving
for innovation (like with To maintain competitive advantage Verizon needs to continue to do
several things. Primarily, Verizon should attempt to push costs and churn rates lower. By
reducing fixed costs, the company their Fleetmatics’ REVEAL TM), because innovation in a
saturated market is a great way to get additional market share. Consequently, Verizon needs to
keep doing what it is doing, not deviate too much, but also not be fearful to step off the beaten
path momentarily to chase an innovative idea.
Recently, Verizon Wireless implemented a procurement system for the purchase of all property
and infrastructure at its locations. The system identified sites by city, state and ZIP Code™
locations. However, when cross-referenced with GeoTAX, the company saw that 40 percent of
the sites listed in a city tax jurisdiction were, in fact, in county zones. Avoiding city taxes in
these sites resulted in dramatic cost savings. Additionally, GeoTAX helped Verizon Wireless
adhere to the Mobile Telecommunications Sourcing Act (MTSA), which prohibits assigning
jurisdictions based on ZIP Code to decrease inaccurate taxing. Verizon Wireless was able to
benefit from provider discounts by complying with taxation accuracy measures, in addition to
avoiding frequent au
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