Name: RENANTE L. CONSOLACION
Program: PhD DAEG
CASE STUDY
I.
Title of the Case
American Greetings: Through the Tides of a Volatile Market and Dynamic Environment
II.
Facts of the Case
As part of an industry with generous profit margins and high barriers to entry,
American Greetings had spent decades in a comfortable position. Beginning at the turn
of the 20th century, it had helped to create a mass market for the greeting card and had
presided over its growth into a multi-billion-dollar industry. Because the manufacturing
of cards—especially those with special designs or attachments—could be complex, and
because customers were used to choosing from a large selection of cards, it was difficult
for new players to offer the big, established card companies any serious competition.
By the end of the 20th century, American Greetings was the second-largest
greeting card company in the world, after Hallmark, and had bought out several of its
lesser competitors. It had expanded its expertise to become a major manufacturer of gift
wrap, party goods, stationery, calendars, and other “social expression” products. And it
had also been successful as the creator of licensed characters such as Holly Hobbie,
Strawberry Shortcake, and Care Bears. But the core of its business remained the profitable
greeting card. As senior vice president and executive supply chain officer Michael Goulder
put it, “The average card has 25 to 40 cents of variable cost in it, we wholesale it for a
buck or so, and the retailer sells it for $3.00. What a wonderful industry!”
However, by the late 1990s, the business had become more challenging. Growth
in greeting card sales stagnated, and existing customers began to turn to online cards. At
the same time, the company began to experience pressure from retailers who wanted an
increasingly larger share of the healthy margins. Greeting cards were still a wonderful
industry, but there were worries about the future.
As executives began to look for cost-cutting strategies, it was clear that the
manufacturing process needed to be re-examined. In Goulder’s words, “because of the
way the industry worked for a long time, we were late in focusing on the efficiency of
operations.” But the question turned out to be complex, because American Greetings had
incomplete data on its manufacturing costs and no data on outsourcing alternatives.
Before it could decide on a plan for reducing costs, it had to more precisely measure the
company’s current costs for machinery, production, labor, and transportation.
Then the company had to decide on the most effective way to economize. Two
main options rose to the top: improvements in process and technology, and outsourcing
to China. A number of executives assumed that the answer lay in moving production
overseas, but others argued that more savings could be obtained by improving existing
facilities and upgrading legacy equipment. In March 2005, partisans of outsourcing and
partisans of upgrading were both making their cases, as the company looked to determine
the future of manufacturing.
III.
Problems of the Case
Problem 1
By the late 1990s, the business had become more challenging. Growth in greeting
card sales stagnated, and existing customers began to turn to online cards. At the same
time, the company began to experience pressure from retailers who wanted an
increasingly larger share of the healthy margins. Greeting cards were still a wonderful
industry, but there were worries about the future.
Problem 2
American Greetings had incomplete data on its manufacturing costs and no data
on outsourcing alternatives. Before it could decide on a plan for reducing costs, it had to
more precisely measure the company’s current costs for machinery, production, labor,
and transportation.
Problem 3
The company had to decide on the most effective way to economize. Two main
options rose to the top: improvements in process and technology, and outsourcing to
China.
IV.
Alternative Courses of Action
For Problem 1, the following alternative courses of action are given:
Alternative Course of Action 1: Scale down operations and production
Since American Greetings has experienced stagnation in sales, the company
should make appropriate changes in its cost structure. The company may reduce its
operation and production commensurate to the market demand of paper printed
greeting cards.
Alternative Course of Action 2: Innovate market strategy
A couple of businesses have based almost all their company model on ensuring
that the service they offer to their clients is amongst one of the most innovative.
Consumers buy the brand-new item instead of the old. Additionally, businesses are trying
to concentrate on initiatives which best take advantage of the carrier's abilities and
particular niche in the market, and creating brand-new techniques to track trends and
create strategies for altering business directions if a specific effort isn't panning out as
anticipated. American Greetings should identify new and existing markets, create
innovative products efficiently, and research and test on the market demands rigorously.
The advances of technology have changed the views and methods of social interaction.
Instead of using physical greeting cards to express gratitude or emotions, people have
begun utilizing the internet to send electronic cards. In this view, American Greetings
need to re-engineer their operations to remain competitive. The company needs to
transition and conceptualize business strategy on how to strengthen electronic cards as
a viable option against printed paper cards.
For Problem 2, the following alternative courses of action are given:
Alternative Course of Action 1: Have a brainstorming session, do some financial
analysis and make estimations of quantitative parameters.
The executives of the company can review and extract its past financial statements
and from these statements make intelligent estimations or assumptions of the
manufacturing costs.
Alternative Course of Action 2: Create a department or assign a team tasked to
keep and update company’s financial records such as sales, orders, operational costs or
expenditures, revenue, among others.
Relevant data of the company regarding sales, orders, operational costs or
expenditures, revenue, among others are very critical in decision making and strategy
devising, thus, there is a need that a particular department or team should be taking
charge in keeping and updating a record of these matters. Figures or data of the company
are essential in making financial analysis as well as financial modelling. Results of which
can help the company to determine the future course of action, boost the confidence of
investors and creditors, and serve as basis for investment decisions.
For Problem 3, the following alternative courses of action are given:
Alternative Course of Action 1: Streamlining and automating domestic production
The company could best maintain the quality and efficiency of operations by
streamlining manufacturing in the United States and investing in upgraded equipment.
Alternative Course of Action 2: Outsource card production
Outsourcing is already a trend. The company can look for a site country or state,
which in this case is China, that will bring the advantages of cheaper labor and higher
productivity. The greatest advantage to outsourcing will be the expected reduction in
labor costs.
V.
Conclusions
In the face of a highly volatile market, technological advancement, and changing
demands of the customers, American Greetings is confronted with problems demanding
urgent decisions. The questions of what stays, what goes, and how to improve what stays
are really needed to be examined in order for the company to remain on top of the
situation. There is a great challenge to analyze the problems correctly so that the
company would neither leave potential savings on the table nor jeopardize service levels
with an unreliable supply chain. So, for the case under study the following conclusions are
hereby drawn:
Conclusion 1: On scaling down operations and production
Recession is a normal, albeit unpleasant, part of the business cycle (Investopedia,
2021). As economy experiences recession characterized by cascading declines in output,
employment, income, and sales that feed back into a further drop in output, spreading
rapidly from industry to industry and region to region, any business can also face at some
point decline or shrinkage. In times when demand for the product declines, and the trend
goes on for some time, the company should scale down its operation and production.
Balancing capacity and the projected demand is needed. If the company set capacity too
low and so produce less than it should, the company won’t be able to meet demand, and
it will eventually lose sales and customers. If the company set capacity too high and turn
out more cards than it should produce, it will just waste resources and inflate its operating
costs.
Conclusion 2: On innovating market strategy
As a general rule, demand is a function of consumer preferences and behavior,
the market environment, internal factors more or less under the control of the project,
that is, the marketing approach, and other factors such as product life cycle. Demand
decreases as a result of product obsolescence, or new technology offers a worthy
substitute (such as optical fibers vs. copper wire). Some producers are forced out of the
business as profitability shrinks (Kurowski and Sussman 2011).
Greeting card market continuously contracts as the demand for it declines.
Substitution of greeting cards of other forms of social expression products, the ease of
using alternative forms as smart phones, electronic social networking and digital imaging,
as well as rapid expansion of social media networks are some of the reasons that drive
market contraction. American Greetings should respond to these challenges by using
technology to innovate. They can make an extensive collection of electronic cards that
will make it easy for customers to send cards electronically. They can also use online
shopping platforms or maintain a website that will allow customers to order paper
greeting cards via internet and have the cards delivered directly to the recipients.
The role of innovation in marketing is to explore new markets to increase sales
and profitability. Innovation marketing believes in the dynamics of business world that
are changing on regular basis and so as the marketing strategies as well. Marketers know
that conventional marketing techniques are not effective anymore and the businesses are
surrounding by advanced technology. Innovative strategies in marketing allow marketers
to trace the performance alter the strategies to better cater the customers’ needs
(marketing tutor.net).
Conclusion 3: On having a brainstorming session, doing some financial analysis and
making estimations of quantitative parameters
Information is gathered not only about markets per se, but the entire spectrum of
factors on which they are dependent: within the enterprise and the commercial and wider
domains. One of the first tasks is to decide what information is available and what is
needed to fill the gaps. Some primary data can be obtained by informal means from
individuals and groups involved in production, consumption, or distribution of the
product (Kurowski and Sussman, 2011). In the absence of primary data, discussions with
knowledgeable persons on production aspects would be the best move to have some estimations
of quantitative parameters.
Financial analysis is of extreme importance, but data should be supplied or made available
first. Through analysis, the executives can accurately evaluate the stability, profitability and
liquidity of the company.
Conclusion 4: On creating a department or assigning a team tasked to keep and
update company’s financial records such as sales, orders, operational costs or
expenditures, revenue, among others
According to Kastelle (2012) “If you are willing to do the hard thinking required to
practice evidence-based management, if you want to reap its benefits, you need to
recognize your blind spots, biases, and your company’s problems and take responsibility
for finding and following the best data and logic.” This implies the importance of keeping
records. An organization’s records are used to budget and forecast the future and are
checked by banks, tax officials and external auditors to make sure that everything
balances out.
Businesses operating in a fast-paced and dynamic environment, the task of
keeping records can fall secondary to everyday business operations. However, failing to
efficiently keep up-to-date and comprehensive records can hurt your business’s long term
operations. Probably the most important reason behind sound record-keeping is that it
allows the company to learn and grow from its own business experiences. Keeping the
records in check will help the management understand the current situations of the
business and also project future profit or losses. In addition, good record keeping will also
show them business aspects which need improvement or re-invention.
Conclusion 5: On streamlining and automating production
Investing in technology as automating manufacturing or production aspect of the
business or any aspect of the business operations that can be automated is a good
business decision. A computer-aided manufacturing (CAM) software system determines
the steps needed to produce the component and instructs the machines that do the work.
Because CAD and CAM programs can “talk” with each other, companies can build
components that satisfy exactly the requirements set by the computer-generated model.
CAD/CAM systems permit companies to design and manufacture goods faster, more
efficiently, and at a lower cost, and they’re also effective in helping firms monitor and
improve quality (Skripak, 2018).
By automating and integrating all aspects of a company’s operations, computerintegrated manufacturing (CIM) systems have taken the integration of computer-aided
design and manufacturing to a higher level—and are in fact revolutionizing the production
process. CIM systems expand the capabilities of CAD/CAM. In addition to design and
production applications, they handle such functions as order entry, inventory control,
warehousing, and shipping. In the manufacturing plant, the CIM system controls the
functions of industrial robots—computer-controlled machines used to perform repetitive
tasks that are also hard or dangerous for human workers to perform.
Conclusion 6: On outsourcing production
According to Skripak (2018) outsourcing has become an increasingly popular
option among manufacturers. For one thing, few companies have either the expertise or
the inclination to produce everything needed to make a product. But this option carries
some advantages as well as disadvantages and American Greetings needs to be prepared
for the full range of risks and benefits of outsourcing.
In this case, although labor costs will be of much cheaper in China, some problems
with transportation, lead times, and training might occur if production will be sent to this
distant country. The logistical costs of outsourcing manufacturing in China will be
significant. To ship the products halfway around the world will be more expensive than
to truck it from the country directly to the company’s distribution center. With
manufacturing located in the country, maximum flexibility could be given to the
company’s planners and designers. It will be relatively easy to send last-minute changes
to the plant or to add rush jobs for important customers. The increased transportation
times that may come with outsourcing, the responsiveness to these last-minute changes
might be degraded. It would be essential to do some short-term production close to
home, otherwise if production is outsourced the company will pay high costs for airfreight for the inevitable rush jobs.
Another challenge that has to be considered is the difficulty of training a foreign
manufacturer. To potential vendors in China, mass production of greeting cards will be
new. A parallel problem is that a foreign vendor who did not understand card production
would also not know how to estimate costs, another things for consideration when
outsourcing the production to China are the political climate in the country as well the
stability of its currency.
VI.
Recommendations
An integral part of Total Quality Management (TQM) is continuous improvement:
the commitment to making constant improvements in the design, production, and
delivery of goods and services. Improvements can almost always be made to increase
efficiency, reduce costs, and improve customer service and satisfaction. Everyone in the
organization is constantly on the lookout for ways to do things better (Skripak, 2018). In
light of the formulated alternative courses of action and drawn conclusions above and in
consideration of continuous improvement, the following recommendations for each
problem put in lens in this case of greeting card company American Greetings are hereby
made:
For Problem 1
American Greetings should innovate its market strategy.
For Problem 2
Adopting the first alternative course of action then learning from the lapse of not
keeping or recording data, the management of the company should also take the second
alternative course of action, that is, assign an able team for record keeping tasks.
For Problem 3
The company should streamline and automate its domestic production.
Outsourcing to China is not a viable option since the losses would outweigh the gains.
References:
Innovative
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&
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Investepodia.
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What
is
a
Recession?
https://www.investopedia.com/terms/r/recession.asp#:~:text=Recession%20is%
20a%20normal%2C%20albeit,in%20production%2C%20and%20elevated%20une
mployment.
Kastelle, Tim (2012). The Case for Evidence-Based Management retrieved from
https://timkastelle.org/blog/2012/02/the-case-for-evidence-basedmanagement/
Kurowski, Lech & Sussman, David (2011). Investment Project Design: A Guide to Financial
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Nagy, Andrea R., Lee Gene, and Swersey, Arthur. American Greetings. Yale SOM Case 08010, February 21, 2008.
Skripak, Stephen J. (2018). Fundamentals of Business, 2nd Edition, Blacksburg, VA: VT
Publishing. http://hdl.handle.net/10919/84848. Licensed with CC BY-NC-SA 4.0
https://creativecommons.org/licenses/by-nc-sa/4.0.