BUS 491 — Seminar in Management Strategy & Policy
Sonoma State University
Spring 2010
Section 3: Tuesday/Thursday: 3:00 - 4:50 p.m., Stevenson 3026
Dr. Armand Gilinsky
Professor of Business
Stevenson 2026F: 707.664.2709 (Office: TTh 2–3p)
Sonoma State University
Rohnert Park, CA 94928 USA
Email: armand.gilinsky@sonoma.edu
Website: www.sonoma.edu/users/g/gilinsky/
Final version 1/18/2010
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 2
Required text:
Hunger, J. D. and Wheelen, T. L. (2007) Essentials of Strategic
Management, 4th ed., softcover, Pearson/Prentice-Hall. [Essentials]
[on sale at the SSU bookstore]
Instructor website: www.sonoma.edu/users/g/gilinsky/
Username:
gilinsky
Password:
Chaminade (case-sensitive)
By accepting this learning contract, I (the student) also agree to abide by and comply with the
terms of the University’s Honor Code.
Welcome to our Spring 2010 Strategic Management course!
My vision is to help you to generate world-class, cutting-edge business solutions. The
overriding objective of this course is to provide the questions you need to ask to make the right
decisions about the future of a business or non-profit organization. Strategic management entails
generating choices to be made among competing alternatives to produce a competitive advantage
and earn above-average returns. Rapid technological change, mergers and acquisitions,
increasing globalization, and changing stakeholder demands on businesses have heightened the
urgency to ask the right questions about the future, such as:
1. Which distinctive competencies should we be developing for our businesses?
2. Where should we compete?
3. How do we communicate our strategy to our stakeholders?
We are fortunate to have your collective wisdom as well as that of several video podcasts of
guest speakers from the business community to help guide us through complex strategic issues.
Learning objectives. The primary goal of this course is to teach you how to think and act
strategically. By successfully completing BUS 491, you will learn:
1. What are the interrelationships among the functional areas of an enterprise;
2. How to develop and use skills in decision-making and oral and written presentation;
3. How to analyze, formulate and implement strategies, especially the role of top management
teams in performing these activities.
By the end of the course, you should be able to analyze thoroughly a company, its industry and its
competitors and to recommend a well-supported strategy to your Board of Directors.
Course description. This course in business policy focuses on integrative, multifunctional
approaches to the solution of organizational issues and unstructured problems. A practical
perspective, rather than a merely theoretical one, is stressed via discussion of case studies. Why
use a case-study approach? Three levels of learning take place:
1. We share the generalized insights of leading theoreticians;
2. We test the applicability and limits of these theories to specific case studies; and
3. You develop your own special amalgam of insights based upon empirical observations and
inductive reasoning (from case analyses).
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 3
How are cases used in BUS 491?
•
•
•
Discussion vehicles for probing the benefits and limits of certain approaches;
Opportunities to apply and test concepts and tools related to dimensions of management
thought (e.g., marketing, accounting, finance);
Aid in understanding the nature of “better” answers, as well as the complexity of reaching
solutions and implanting them in organizations.
What do you—as class member—need to do? First, understand what went on in that situation:
•
•
•
What has changed?
What are the key questions about the future that need to be answered?
What further information is needed to answer those questions?
Major emphasis is placed on action and implementation, not just on analysis. Each case features
a top management team (TMT) facing a specific set of issues and problems. You will have an
opportunity to see a wide range of TMTs in action, and think about their specific choices and
actions as if your group were the TMT in charge. Effective groups integrate concepts of all other
prerequisite business courses, i.e., bring together and apply the learning from core courses to the
analysis and solution of strategic management problems. Critical thinking involves:
1.
2.
3.
4.
Identifying and diagnosing the major problems and opportunities for business organizations,
Using a cross-functional perspective to formulate feasible strategies that solve problems;
Deciding among alternative action plans and formulating feasible implementation steps, and
Presenting a position and defending that position.
Study groups. Please form study groups consisting of four members, meeting regularly to
discuss the cases and readings before they are discussed in class. Groups may “trade” members
until Tuesday, March 30th. The aim of study groups is to share and prepare individual analyses
and enhance class participation. Class time is set aside for meetings. As the course progresses,
you will find it necessary to spend time meeting outside of class. Please evaluate yourself and
your study group members using the Peer Evaluation form on p. 23 – due in class May 18.
Class contributions. You should come prepared for class discussion of cases and supplemental
readings, i.e., with an outline or condensation of your case analysis, stating your perception of the
underlying problem, some supportive data, and your recommended plan(s) of action. Bear in
mind how difficult it is to assess your contributions if you are absent from class! Attendance will
be taken. Each student will be permitted one (1) unexcused absence. Your class contribution
grade will be updated weekly and based on: 1) evidence of careful preparation of the cases and
readings; 2) clarity and conciseness of your analysis; and 3) strong and convincing presentation
of your findings and conclusions. Guidance for class contributions is on p. 10.
Performance evaluation. Strategic issues seldom have clear-cut or singularly “right” solutions.
So, my evaluation of your performance will be based upon your managerial aptitude in problem
diagnosis, generation of solutions, and communication of your position. I will be looking for
demonstration of logical argumentation and consistency in your thought processes. Grades will
be based on your performance in (a) oral discussion and argument (defense) of your ideas, (b)
written communication, and (c) ability to work effectively in teams. Final grades are based on
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 4
50% individual effort and 50% team effort, and will be on a curve, with the top 20% of the
section receiving “A or A-,” the middle 70% receiving “B+/B/B-,” and the bottom 10% receiving
grades in the “C” or lower ranges. These will be weighted as follows:
Contributions [Individual, p. 10 + BAT “Bonus”+ Peer Eval, p. 23] .................................. 40%
Written case analysis [Ten (10) Group “Issue Briefs” [See Course Calendar pp. 5–8 for
due dates, times, and grade weights ........................................................................ 40%
Practice group case presentation [See Course Calendar and pp. 11 & 12] ............................ 5%
Final group case presentations [May 18 & 20 in class] ......................................................... 5%
Final individual case write-up [due May 25 @ 11am] ......................................................... 10%
Total ................................................................................................... 100%
Written case analyses. In order to create opportunities for us to explore more basic strategy
issues and discuss methods of formulation and implementation that might otherwise have to be
rushed, we will be using an electronic submission format for Issue Briefs. Please submit your
group case analyses as an MS Word file (double-spaced, Times New Roman 12 pt font, 1 inch
margins) to me via WebCT on days assigned using a file name <CaseAbbrev.team#.doc> (e.g.,
for Western Union in 2008, WU.Group1.Doc, or for Copperfield’s Books, Inc., CB.Group2.doc,
etc.). Please do not merely answer the study questions — use the following format:
1.
Indicate your key case decision (what the GM needs to do now and why) in one succinct
sentence (17-20 words, maximum);
2.
Support your decision by three (3) bullet points – less than one line in length; use dimensions
of strategic management gleaned from the assigned chapters in the Essentials text and
supporting readings; avoid judgment here; your three bullet points are essentially a table of
contents (preview) to the rest of (body) of your analysis;
3.
Add any qualitative and/or quantitative comments/discussion which you feel is/are necessary
to substantiate your analysis. (1-2 page limit, about 250-500 words, plus exhibits (no page
limit), which should be numbered consecutively and referred to in the body of your
analysis); and then
4.
Conclude by restating the central problem or issue and recommendation for action, noting
lessons learned about strategic management, based on the readings that you have absorbed
from the assigned chapter(s) in the Essentials textbook.
Each group’s analysis is due on days Issue Briefs are assigned (see Course Calendar, pp. 5–8, for
specific deadlines and times, and p. 9 for guidance). Acceptable Briefs are given a “2,” which is
equivalent to a “B” grade. Unacceptable or late submissions will be assigned a “1” equivalent to
a “C” grade. Issue Briefs not submitted on the date due for any reason will be assigned an “F”
or “0” grade. An outstanding effort will receive a “3,” equivalent to an “A” grade. Grading and
coaching comments on Issue Briefs will be returned to you via WebCT. NOTE: group written
case analysis (issue brief) assignments due in the latter half of this seminar, i.e., # 6-10, will be
weighted three times (3x) those due at the beginning.
Final examination. The final examination consists of a group oral presentation and an
individual written case analysis (similar in format to the earlier group issue brief assignments).
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 5
The final examination will provide every student with an opportunity to write a lengthier case
analysis — up to five (5) double-spaced pages — and will be assigned a letter grade.
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 6
COURSE CALENDAR
Date
Topic(s)
Assignment(s)
Read/prepare: Syllabus.
Tuesday, Feb. 2, 2010
Course topics
Class cards & photos (due 2/9/10 in class).
Building teams
“Mocktail” party to select study group partners.
Thinking for yourself
Intro Strat 491: course overview “lecturette” (WebCT).
Outro: “Dead Poets' Society” (video).
Effective case dialoguing
Thursday, Feb. 5, 2010
Strategic analysis
framework
Read/prepare: Essentials, Ch. 1.
Case: “Robin Hood (see Syllabus, pp. 13–14).
Discuss “Robin Hood” case in class.
Critical thinking
Assessing a firm’s financial
health
Tuesday, Feb. 9, 2010
Core purpose and values
Read/prepare: “A Note on Ratio Analysis” (see
Syllabus, pp. 15–20) + Values exercise (see Syllabus, p.
21).
Meet in study groups to prepare/compare ratios + Bring
financial calculator and/or laptops with Excel.
Our values
Class cards and photos are due today.
Thursday, Feb. 11, 2010
Using financial ratio
analysis for strategic
decision-making
Tuesday, Feb. 16, 2010
Conducting library research
for strategy case analysis
Discuss: “A Note on Ratio Analysis” – Bring
spreadsheets/calculators to class!
Turn in spreadsheets with team members’ names on
the top right. Grade weight = acceptable or do over.
Class meets in Shultz 2050 with Rick Robison,
Business Librarian!
Read/prepare: Essentials, Chs. 2 & 11
Thursday, Feb. 18, 2010
The role of the strategist
Case: “Western Union in 2008: Send Me the Money!”
(AG website)
Meet in study groups to prepare WU case.
Tuesday, Feb. 23, 2010
Strategic plans, leadership,
technology change,
diversity, governance &
social responsibility
Discuss: “Western Union in 2008”
Group Issue Brief #1 [WU] due by Noon, grade
weight = 2%.
BUS 491 – Section 3
Spring, 2010
Date
Dr. Gilinsky/page 7
Topic(s)
Assignment(s)
Read/prepare: Essentials, Ch. 3 (pp. 32-43 only) and M.
E. Porter’s (2008) “The Five Competitive Forces That
Shape Strategy” (on reserve at Shultz)
Thursday, Feb. 25, 2010
Competitive forces
Case: “Mendocino Brewing Co.” (AG website)
Meet in study groups to prepare MBC case.
Discuss: “Mendocino Brewing Co.”
Tuesday, Mar. 2, 2010
Industry attractiveness and
key success factors
Group Issue Brief #3 [MBC] due by Noon, grade
weight = 2%.
Read/prepare: Essentials, Ch. 3 (pp. 43-53 only); and
“A Note on Conducting Situation Analysis.” (AG
website)
Thursday, Mar. 4, 2010
Situation analysis:
environmental scanning &
forecasting techniques
Case: “Copperfield’s Books” (Instructor website download). See: Video supplement for CB case (linked
on WebCT)
Meet in study groups to prepare CB case.
See: Niche Trap PPT presentation (WebCT)
Tuesday, Mar. 9, 2010
Using environmental scans
to formulate strategy
Discuss: “Copperfield’s Books”
Group Issue Brief #4 [CB] due by Noon, grade
weight = 2%.
Read/prepare Essentials, Ch. 4
Thursday, Mar. 11, 2010
Situation analysis: internal
scanning techniques
Case: “Kimpton Hotel & Restaurant Group” (Instructor
website - download).
Meet in study groups to prepare KG case.
Discuss: “Kimpton Hotel & Restaurant Group”
Tuesday, Mar. 16, 2010
Competing for industry
futures
Group Issue Brief #5 [KG] due by Noon, grade
weight = 2%.
Read/prepare Essentials, Ch. 5 & 6
Thursday, Mar. 18, 2010
Using SWOT analysis for
strategy formulation
Case: “Oliver’s Markets” (AG website). See: Video
supplement for OM case (linked on WebCT).
Meet in study groups to prepare OM case.
Tuesday, Mar. 23, 2010
Generic strategies
Competitive dynamics and
Group Issue Brief #6 [OM] due by Noon, grade
weight = 6%.
BUS 491 – Section 3
Spring, 2010
Date
Thursday, Mar. 25, 2010
Dr. Gilinsky/page 8
Topic(s)
Assignment(s)
strategy formulation
Discuss: “Oliver’s Markets”
Outcomes assessment
Business Assessment Test (“BAT” part I)
Business Assessment Test (“BAT” part II)
Tuesday, Mar. 30, 2010
Outcomes assessment
Contribution grade bonus for completing both
sections of BAT = 5%.
How firms globalize &
diversify
Read/prepare Essentials, Chs. 7 & 8
Case: “Nike in 2009” (Instructor website - download)
Meet in study groups to prepare NIKE case.
Thursday, Apr. 1, 2010
No class
FURLOUGH DAY
No class
Spring Break
No class
FURLOUGH DAY
Tuesday & Thursday,
Apr. 6 & 8, 2010
Tuesday, Apr. 13, 2010
Benefits & limits of
diversification
Thursday, Apr. 15, 2010
Strategy implementation:
globalization &
organization structure
Discuss: “Nike in 2009”
Group Issue Brief #7 [NIKE] due by Noon, grade
weight = 6%.
Groups 1 & 2 practice presentations, grade weight =
5%. See pp. 11 & 12 for guidance.
Case: “Villa Maria Estates” (AG website). See: Global
Strat PPT presentation (download from WebCT).
Discuss: “Villa Maria Estates”
Tuesday, Apr. 20, 2010
Strategies for sustainability
Group Issue Brief #8 [VME] due by noon, grade
weight = 6%
Groups 3 & 4 practice presentations, grade weight =
5%. See pp. 11 & 12 for guidance.
Read/prepare: Essentials, Ch. 9
Thursday, Apr. 22, 2010
Corporate culture, staffing,
social responsibility (CSR)
& ethics
Case: “Abercrombie & Fitch” (AG website)
Meet in study groups to prepare AF case.
Discuss: “Abercrombie & Fitch”
Tuesday, Apr. 27, 2010
Implementing change
Group Issue Brief #9 [AF] due by Noon, grade
weight = 6%.
BUS 491 – Section 3
Spring, 2010
Date
Dr. Gilinsky/page 9
Topic(s)
Assignment(s)
Groups 5 & 6 practice presentations, grade weight =
5%. See pp. 11 & 12 for guidance.
Read/prepare: Essentials, Ch. 10
Thursday, Apr. 29, 2010
Strategy evaluation, control,
& sustainability
Case: “Respironics, Inc. – Take A Deep Breath”
Meet in study groups to prepare RESP case.
Discuss: “Respironics, Inc.”
Tuesday, May 4, 2010
Competitive strategy
Group Issue Brief #10 [RESP] due by Noon, grade
weight = 6%.
Groups 7 & 8 practice presentations, grade weight =
5%. See pp. 11 & 12 for guidance.
Thursday, May 6, 2010
Course wrap-up and tips for
the final exam
Distribute take-home final [TBA] case.
Read: “A Note on Strategic Plans” (AG website)
Tuesday & Thursday,
“Dead Week” – No classes
See: Strategic Plan PPT (download from WebCT).
May 11 & 13, 2010
Meet in study groups to prepare final exam case.
Groups 1–8, Final Presentations - Grade weight =
5%. See pp. 11 & 12 for guidance.
Tuesday & Thursday,
Effective oral presentations
May 18 & 20, 2010
Peer evaluations (see Syllabus, p. 23) due today!
Student course evaluations – May 18th
Tuesday, May 25, 2010
Putting it all together
Take-home Individual Final Issue Brief due @ 2:00
p.m. via WebCT & in class.
Grade weight = 10%
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 10
Ways To Approach A Case
Remember, there is no single, right solution. Each case describes a complex situation and there
may be a number of equally valid analyses. Try to put yourself in the place of the person who is
facing the problem(s) and who is required to make decisions and act. You may want to consider
the following factors in your analysis:
1. What is the problem—or problems? Are the problems short-term, long-term, new to the
organization, chronic, etc.? Who is the decision-maker?
2. What is the time framework? How urgent is the situation? What are the priorities?
3. What is the nature of the organization? Who are the key people or stakeholders involved?
4. What industry, competitive, economic factors/trends are significant? How do they influence the
current situation? How do they influence future action?
5. What financial information is important (costs, cash flow, ratios, margins, etc.)? Run the
numbers! How do these data impact your analysis and recommendation?
6. What are the significant marketing considerations? What is the product or service? Who is your
market? How do we price, promote, distribute?
7. What are the significant production/operation considerations? How and where do we produce?
Are operations labor- or capital intensive? What lead times are required?
8. What are the key human resource management issues? How do they impact on our course of
action, particularly in its implementation?
9. What business are we in? What is the organization’s strategy? Is it consistent across functions?
What are the risk of/potential rewards from retaining this strategy?
After analyzing the case, generate as many solutions as appropriate. Consider the risks/tradeoffs
involved in each alternative and then decide what you would do in the situation and why. What is
your plan of action? How are you going to implement it? Support your recommendations, but
remain open to different, possibly better ideas.
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 11
Class Contribution
Woody Allen once quipped, “80% of life is just showing up!” and Ed Valenti, creator of the
Ginsu knife reportedly coined the phrase, “But wait…there’s more!” Your contributions will be
evaluated on the basis of the following: (1) understanding and appreciation of case facts; (2)
analysis of case data via strategic management concepts from the textbook and assigned readings;
and (3) recommendations for management decision and action. Below is a checklist to help you
improve your effectiveness in contributing to on-line and in-class discussions:
___
___
___
___
___
___
___
___
___
___
Are you a good (active) listener? Are the points that you are making relevant to the discussion?
Are they linked to the comments of others? Are you willing to interact with other class members?
Have you demonstrated an ability to suspend judgment?
Do you show an ability to ask good questions (inquire and reflect)?
Are you willing to challenge assumptions?
Do your comments add to our understanding of the situation?
Do your comments show evidence of analysis of the case (case preparation)?
Do you distinguish among different kinds of data such as facts, opinions, beliefs, concepts?
Do you demonstrate a willingness to share knowledge?
Are you willing to test new ideas, or are all comments made “safe”? (An example of a “safe”
comment is repetition of case facts with no analysis or conclusions.)
Do your comments clarify and highlight the important aspects of earlier comments and lead to a
clearer statement of the concepts being covered?
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 12
Team Presentations
Teams should prepare a 20-minute presentation of the assigned case covering the topics below. Each
team should prepare for an additional 10 minutes of Q&A.
1. Identify the decision facing this organization; clearly state your recommended solution and why.
2. Perform an analysis of the company’s internal situation and external environment, including industry
& competitors. Caution: some analytical tools may be more appropriate than others.
3. Substantiate your analysis with facts and data from the case. Answer the “So what?” question.
4. Develop alternative solutions, in the context of the competitive pressures the organization faces.
5. Prepare an action plan for this organization.
6. Generate, list, and evaluate short- and long-range strategic alternatives.
7. Show clearly why your recommendation is superior to other alternatives.
8. Discuss how the chosen alternative should be implemented and if it is feasible.
9. Create a timeline and implementation plan.
10. Show evidence of professionalism, polish, teamwork, and clarity.
11. Prepare appealing visual aids, handouts and vocal techniques that support your presentation. NOTE:
put your team number, team members’ names, and the presentation date in the upper-right hand
corner of any handouts you create.
12. Involve each member of the team in the presentation and Q&A session.
NOTE: TEAMS MUST BE PUNCTUAL.
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 13
BUS 491— Seminar in Strategic Management
Sheet
Team Presentation Score
REVIEWER’S NAME _________________________________
TEAM NUMBER _____________________________________
DATE:
[Key: 0 = Marginal; 1 = Satisfactory; 2= Superior]
[Comments]
PROBLEM IDENTIFICATION
Specified problem and solution
0
1
2
Depth of understanding of issues
0
1
2
Logical call to action
0
1
2
ANALYSIS
Internal assessment & financial analysis
0
1
2
External and competitive assessment
0
1
2
Factual support and relevance
0
1
2
RECOMMENDATIONS
Reasonable range of alternatives
0
1
2
Appropriateness of alternatives
0
1
2
Risks & contingencies clearly identified
0
1
2
Implementation timeline
0
1
2
Feasibility in terms of know-how, time, cost
0
1
2
TEAMWORK & PRESENTATION
Visual aids, sharing of workload, clarity,
effectiveness in Q&A
_____________________
Marginal = 0
Satisfactory = 1
Superior = 2
Total (0-6)
---------------------------------
Total (0-6)
---------------------------------
Total (0-10)
---------------------------------
Total (0-2)
---------------------------------
TOTAL POINTS
-------------------------------
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 14
NOTE: Total possible points = 24 points. A = 20–24 pts., B = 16–19 pts., C = 12–15 pts., D = 9–11 pts., F = < 9 pts.
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 15
Robin Hood - A Mini Case Study
Joseph Lampel, New York University
It was the spring of the second year of his insurrection against the High Sheriff of Nottingham
that Robin Hood took a walk in Sherwood Forest. As he walked he pondered the
progress of the campaign, the disposition of his forces, the Sheriff's recent moves,
and the options that confronted him.
The revolt against the Sheriff had begun as a personal crusade. It erupted out of
Robin's conflict with the Sheriff and his administration. However, alone Robin
Hood could do little. He therefore sought allies, men with grievances and a deep
sense of justice. Later he welcomed all who came, asking few questions, and
demanding only a willingness to serve. Strength, he believed, lay in numbers.
He spent the first year forging the group into a disciplined band, united in enmity against the
Sheriff, and willing to live outside the law. The band's organization was simple. Robin ruled
supreme, making all-important decisions. He delegated specific tasks to his lieutenants. Will
Scarlett was in charge of intelligence and scouting. His main job was to shadow the Sheriff and
his men, always alert to their next move. He also collected information on the travel plans of rich
merchants and tax collectors. Little John kept discipline among the men, and saw to it that their
archery was at the high peak that their profession demanded. Scarlock took care of the finances,
converting loot to cash, paying shares of the take, and finding suitable hiding places for the
surplus. Finally, Much the Miller's son had the difficult task of provisioning the ever-increasing
band of Merrymen.
The increasing size of the band was a source of satisfaction for Robin, but also a source of
concern. The fame of his Merrymen was spreading, and new recruits poured in from every corner
of England. As the band grew larger, their small bivouac became a major encampment. Between
raids the men milled about, talking and playing games. Vigilance was in decline, and discipline
was becoming harder to enforce. 'Why', Robin reflected, 'I don't know half the men I run into
these days.'
The growing band was also beginning to exceed the food capacity of the forest. Game was
becoming scarce, and supplies had to be obtained from outlying villages. The cost of buying food
was beginning to drain the band's financial reserves at the very moment when revenues were in
decline. Travellers, especially those with the most to lose, were now giving the forest a wide
berth. This was costly and inconvenient to them, but it was preferable to having all their goods
confiscated.
Robin believed that the time had come for the Merrymen to change their policy of outright
confiscation of goods to one of a fixed transit tax. His lieutenants strongly resisted this idea.
They were proud of the Merrymen's famous motto: 'Rob from the rich and give to the poor.' 'The
farmers and the townspeople,' they argued, 'are our most important allies. How can we tax them,
and still hope for their help in our fight against the Sheriff?'
Robin wondered how long the Merrymen could keep to the ways and methods of their early days.
The Sheriff was growing stronger and becoming better organized. He now had the money and the
men, and was beginning to harass the band, probing for its weaknesses. The tide of events was
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 16
beginning to turn against the Merrymen. Robin felt that the campaign must be decisively
concluded before the Sheriff had a chance to deliver a mortal blow. 'But how,' he wondered,
'could this be done?'
Robin had often entertained the possibility of killing the Sheriff, but the chances for this seemed
increasingly remote. Besides, killing the Sheriff might satisfy his personal thirst for revenge, but
it would not improve the situation. Robin had hoped that the perpetual state of unrest, and the
Sheriff's failure to collect taxes, would lead to his removal from office. Instead, the Sheriff used
his political connections to obtain reinforcement. He had powerful friends at court, and was well
regarded by the regent, Prince John.
Prince John was vicious and volatile. He was consumed by his unpopularity among the people,
who wanted the imprisoned King Richard back. He also lived in constant fear of the barons, who
had first given him the regency, but were now beginning to dispute his claim to the throne.
Several of these barons had set out to collect the ransom that would release King Richard the
Lionheart from his jail in Austria. Robin was invited to join the conspiracy in return for future
amnesty. It was a dangerous proposition. Provincial banditry was one thing, court intrigue
another. Prince John had spies everywhere and he was know for his vindictiveness. If the
conspirators' plan failed, the pursuit would be relentless, and retribution swift.
The sound of the supper horn startled Robin from his thoughts. There was the smell of roasting
venison in the air. Nothing was resolved or settled. Robin headed for camp promising himself
that he would give these problems his utmost attention after tomorrow's raid.
© Joseph Lampel 1991
Study Questions
1. What is the key decision that Robin has to make now?
2. What is he trying to accomplish?
3. How would you rate his performance as entrepreneur/strategist? What is he doing well?
Not so well?
4. What options are available to him now?
5. What do we learn from this case study about strategy?
BUS 491 – Section2
Fall, 2009
Dr. Gilinsky/page 17
A NOTE ON ASSESSING THE FINANCIAL HEALTH OF THE FIRM –
THE CASE OF KALARI BURNS, INC.
How do we assess the financial health of the firm? Let’s take a look at Kalari Burns, a company that
makes diet plans, as an example. Kalari Burns competes with Jenny Craig and Weight Watchers.
•
•
•
•
•
Key issue in assessing the long-term financial health of a firm is whether or not the corporate system
of goals, product-market strategies, investment requirements, and financing capabilities are in
balance.
Also depends on the perspective of the person asking the question.
Has the condition of the company changed over the four-year period? How?
What changes are most significant, as indicated by financial ratios?
What is the context in which these changes took place?
A. Steps:
1. Look at Kalari Burns’ financial statements [see Exhibit 1]
2. Calculate ratios:
—Profitability
—Activity
—Leverage
—Liquidity
B. Profitability ratios—How profitable is the company?
• Profit after tax as a % of sales (ROS)
• Operating profits as a % of total assets (ROA or ROI)
• Profit after tax as a % of equity (ROE)
One measure of a business’s profitability is its “profit as a percentage of sales” as determined
by the profitability ratio equation:
profit after taxes
net sales
The information necessary to determine a company’s profits as a percentage of sales can be
found in the company’s
.
1. Kalari Burns’ profit as a percentage of sales for 2004 (see Exhibit 1) was $
divided by $
or
%.
2. This represented an ( ) increase or ( ) decrease from
% in 2000.
3. The improvement in profitability resulted from an ( ) increase or ( ) decrease in cost of
goods sold as a percentage of sales and from an ( ) increase or ( ) decrease in operating
expenses as a percentage of sales. The only adverse factor(s) was/were the increase(s) in
the
.
4. Management and investors often are more interested in the return earned on the funds
invested than in the level of profits as a percentage of sales. Companies operating in
businesses (e.g, computer software, service bureaus, employment agencies) requiring
very little investment in assets often have low profit margins but earn very attractive
returns on invested funds. Conversely, there are numerous examples of companies in
Final version 1/18/2010
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 18
very capital-intensive businesses that earn miserably low returns on invested funds,
despite seemingly attractive profit margins (e.g., public utilities, telecommunications
companies).
Therefore, it is useful to examine both the level and the trend of the company’s
operating profits as a percentage of total assets (ROA aka ROI). To increase the
comparability across companies within the same industry, it is useful to use profits
before taxes and before any interest charges (earnings before interest and taxes or EBIT).
This allows the analyst to focus on the profitability of operations without any distortion
due to tax factors and/or the method by which the company has financed itself.
Kalari Burns had a total of $
invested in assets at year-end 2004 and
earned (before interest and taxes)$
during 2000. Its operating
profit (as a percentage of total assets) is calculated as follows:
profit before taxes + interest charges
total assets
In 2004 this figure was
from
% in 2000.
%, which represented an ( ) increase or ( ) decrease
5. From the viewpoint of the shareholders, as equally important figure is the company’s
return on equity (ROE). Return on equity is calculated by dividing profit after tax by the
owner’s equity:
profit after taxes
owners’ equity
It indicates how profitably the company is utilizing shareholders’ invested funds.
Kalari Burns had a total of $
of owners’ equity at year-end 2004 and
earned (after taxes)$
during 2004. Its ROE was
%,
which represented an ( ) improvement or ( ) deterioration from
% earned in 2000.
C. Activity ratios—Are there any hidden problems?
The second basic type of financial ratio is the activity ratio. Activity ratios indicate how
well a company employs its assets. Ineffective utilization of assets results in the need for
more finance, unnecessary interest costs, and a correspondingly lower return on capital
employed. Furthermore, low activity ratios and/or a deterioration in the activity ratios may
indicate uncollectible accounts receivable or obsolete inventory and equipment.
“Total asset turnover” measures the company's effectiveness in utilizing its total assets
and is calculated by dividing total assets into sales:
net sales
total assets
As with any other ratio, caution must be exercised due to timing and basis of sales (cash v
credit) and valuation of assets (e.g., age and collectability of accounts receivable, LIFO v
FIFO inventories, method of depreciation used to value net fixed assets, etc.).
1. Total asset turnover for Kalari Burns in 2004 can be calculated by dividing
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 19
$
deteriorated from
into $
times in 2000.
. The turnover ( ) improved or ( )
2. Since the use of total assets may mask important changes in one of the specific asset
categories, it may be useful to examine the turnover ratios for each type of asset. Exhibit
2 gives some examples:
•
•
•
average collection period (days)
inventory turnover (times)
fixed asset turnover (times)
3. So far, we have discussed three measures of profitability: they are
(1)
(2)
(3)
and
.
We have also discussed four activity ratios which measure the effectiveness with which
the company is using its assets: they are:
(1)
(2)
(3)
and
(4)
.
4. The improvement in Kalari Burns’ operating profits as a percentage of total assets
between 2000 and 2004 was primarily due to:
(1)
(2)
(3)
(4)
and
.
D. Leverage ratios—How soundly is the company financed?
The third basic type of financial ratio is the leverage ratio. The various leverage ratios
presented in Exhibit 2 measure the relationship of funds supplied by creditors and the funds
supplied by owners. The use of borrowed funds by profitable companies will improve the
return on equity. However, it also increases the riskiness of the business and, if used in
excessive amounts, can lead to default or liquidation.
1. The improvement in Kalari Burns’ profitability, as measured by its return on equity,
from 5.8% in 2000 to 16% in 2004, resulted from the combined impact of
,
and
.
2. The financial riskiness of Kalari Burns ( ) increased or ( ) decreased between 2000 and
2004.
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 20
E. Liquidity ratios—Is the company able to meet current obligations as they become due?
The fourth basic type of financial ratio is the liquidity ratio (see Exhibit 2). These ratios
assume that, if the company is struck by adversity, current assets are much more readily and
assuredly convertible into cash than fixed assets. They also enable the financial manager to
consider and project the amount of working capital (short-term financing) needed to pay
next year’s (or even next month’s) bills. The current ratio—dividing current assets by
current liabilities—relates these fairly liquid assets to the claims that are due within one
year—the current liabilities. The quick ratio (or “acid test”) is similar to the current ratio but
excludes inventories from the current assets because it is assumed that they often are difficult
to convert into cash, particularly if inventories are comprised mainly of work-in-progress
rather than resalable raw materials or finished goods.
Remember…
Not enough to crunch numbers
Also need to look beyond numbers, see what they mean
How does this company’s financial performance stack up against other firms in the diet plan industry?
Study Questions
1. How was Kalari Burns doing in 2004, relative to 2000?
2. Is this a financially well-managed company? How do we know?
3. Where do you see areas of strength? weakness?
4. What contextual factors might influence your analysis?
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 21
Exhibit 1— Kalari Burns, Inc., Income Statements and Balance Sheets: 2000 and 2004
All numbers in $000
Ending Dec. 31
Net sales
Cost of goods sold
Gross profit
Operating expenses (exc. depreciation)
Depreciation
Interest expenses
Income before taxes
Federal income taxes
Net Income
Consolidated Income Statements
2000
2004
$44,991
$70,100
23,715
33,504
$21,276
$36,596
17,508
26,208
1,570
2,030
1,041
1,418
$1,157
$6,940
82
3,200
$1,075
$3,740
Consolidated Balance Sheets
2000
2004
At Dec. 31
Assets
Cash
Accounts receivable
Inventories
Total current assets
Net fixed assets
Total assets
Liabilities and Stockholders' Equity
Notes payable—banks
Accounts payable
Accrued expenses and taxes
Total current liabilities
Long-term debt
Stockholders' equity
Total liabilities and stockholders' equity
$639
11,936
14,672
$27,247
6,518
$33,765
$1,079
18,145
24,162
$43,386
7,706
$51,092
$8,480
2,154
1,660
$12,294
3,088
18,383
$33,765
$2,719
6,528
7,482
$16,729
11,230
23,133
$51,092
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 22
Exhibit 2 — Kalari Burns, Inc., Financial Ratio Analysis: 2000 and 2004
Formula
I. Profitability
Return on Sales
Profit after taxes/
Net sales
Return on Assets
Profit bef. taxes +
Interest charges/
Total assets
Return on Equity
Profit after taxes/
Owners' equity
Total asset turnover (x)
Net sales/
Total assets
Average collection period, days
Accounts
receivable/
Net sales/365 days
Inventory turnover (x)
Cost of goods
sold/
Inventories
Fixed asset turnover (x)
Net sales/
Net fixed assets
II. Activity
III. Leverage
Debt:Assets
Total debt/ Total
assets
Debt:Equity
Total debt/
Shareholders'
equity
Long-term debt:Equity
Long-term debt/
Shareholders'
equity
Times interest earned (x)
Earnings before
interest and taxes/
Interest charges
IV. Liquidity
Current ratio (x)
Quick ratio (x)
V. Compound Annual Growth Rates (CAGR)
4 yrs. CAGR, Sales
4 yrs. CAGR, Net Income
Total Assets
Current assets/
Current liabilities
Current assets –
Inventories/
Current liabilities
2000
2004
Remarks
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 23
OUR VALUES
The most important thing in life is to decide what is most important.
What should our organization, department, unit, or study group team stand for? What should be
the values by which we operate? Look over the list of values below. Circle any values that “jump
out” because of their importance to you. Then write your top three values, in order of importance,
below the list. Feel free to add values, if needed.
truth
efficiency
persistence
sincerity
resources
dependability
initiative
fun
trust
environmentalism
power
control
courage
competition
excitement
creativity
happiness
relationships
wisdom
flexibility
perspective
commitment
recognition
learning
honesty
excellence
teamwork
service
profitability
freedom
friendship
influence
justice
honor
innovation
sustainability
financial growth
community support
integrity
peace
loyalty
clarity
originality
candor
prosperity
respect
fairness
order
spirituality
adventure
cooperation
quality
hard work
responsiveness
fulfillment
purposefulness
strength
self-control
cleverness
success
security
love
humor
collaboration
stewardship
support
1. ____________________________________________________________________________
2. ____________________________________________________________________________
3. ____________________________________________________________________________
Source: K. Blanchard & M. O’Connor (1997), Managing by Values, San Francisco: Berrett-Kohler, p. 112.
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 24
Bullshit Bingo
Do you keep falling asleep in meetings and seminars? What about those long and
boring conference calls? Here is a way to change all of that!
How to play: Check off each block when you hear these words during a meeting, seminar, or phone call.
When you get five blocks horizontally, vertically, or diagonally, stand up and shout BULLSHIT!!
Synergy
Traction
Core
Competencies
Best Practice
Bottom Line
Monetize
Staycation
24/7
Outliers
Benchmark
Value-added
Proactive
Win-Win
Think outside
the Box
Fast Track
Maverick
Empower
Knowledge
Base
At the End of
the Day
Go(ing)
Rogue
Tipping Point
Ballpark
“C” Level
Gamechanger
Bandwidth
Testimonials from satisfied players:
“I had only been in the meeting for five minutes when I won.” -Jack W. - Boston
“My attention span at meetings has improved dramatically.” -David D. - Florida
“What a gas. Meetings will never be the same for me after my first win.” -Bill R - New York City
“The atmosphere was tense in the last process meeting as 14 of us waited for the 5th box.” -Ben G. Denver
“The speaker was stunned as eight of us screamed 'Bullshit' for the third time in 2 hours.” - Kathleen L. Atlanta
BUS 491 – Section 3
Spring, 2010
Dr. Gilinsky/page 25
Seminar in Strategic Management: Individual/Group Effectiveness Peer Evaluations
MY NAME IS: _______________________________________
STUDY GROUP # ____________________________________
DATE ________________ May, 2010
[Please circle one response: 1 = Poor; 2 = Fair; 3 = OK/Satisfactory; 4 = Good; 5 = Superior]
INDIVIDUAL EFFECTIVENESS — RATE YOURSELF
My name ________________________________________________
Poor Fair OK Good Superior
1. Problem-solving
2. Uses time wisely and well
3. Positive contributions to deliverables
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
Comments
-------------------------------------------------------------------------------------------------------
INDIVIDUAL EFFECTIVENESS — RATE YOUR STUDY GROUP MEMBERS
Member name ____________________________________________
Poor Fair OK Good Superior
1. Problem-solving
2. Uses time wisely and well
3. Positive contributions to deliverables
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
Comments
-------------------------------------------------------------------------------------------------------
Member name ____________________________________________
Poor Fair OK Good Superior
1. Problem-solving
2. Uses time wisely and well
3. Positive contributions to deliverables
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
Comments
-------------------------------------------------------------------------------------------------------
Member name ____________________________________________
Poor Fair OK Good Superior
1. Problem-solving
2. Uses time wisely and well
3. Positive contributions to deliverables
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
Comments
-------------------------------------------------------------------------------------------------------
Please rate your study group’s overall effectiveness this semester (1-low, 5-high) ___________________
[You may use the reverse side of this page for comments if necessary)