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CASE STUDY: MANAGING A WIRED WORLD
Although Amazon.com is not yet a decade old, it’s already a case study in Internet success. Found by Jeff Bezos in 1995 as an on-line bookstore, Seatle-based Amazon rings up more than $1.6 billion in e-commerce sales every year. First books, then music and videos, and software, screwdrivers, and sofas—Amazon has grown into a virtual department store for its 17 million on-line customers worldwide. Even as successful chains such as Barnes and Noble and Wal-Mart try to grab a larger piece of the on-line retailing ship and customer base through constant innovation.
Nothing like Amazon existed when Bezos was researching software and the Internet for a New York City firm in 1994. He became intrigued by the business possibilities of selling books on the World Wide Web in much the same way that mail-order firms sell books by mail. This idea proved so compelling that Bezos quickly quit his job, raised money from family and friends, wrote a business plan, and moved to Seattle to be located near a major book wholesaler. One year later, Amazon.com was open for business. In its first month, without advertising or public relations, the site attracted customers from every U.S. state and more than forty other countries.
In those early days, the giant bookstore chains paid little attention to Amazon. Within two years, however, Amazon’s discount prices, free e-mail book reviews, and easy search capabilities had attracted so many shoppers and so much media coverage that competitor started scrambling to open their own Internet book stores. But Amazon’s established reputation and loyal customer following were major hurdles for rivals to overcome. In fact, despite aggressive promotions and pricing, Barnesandnoble.com is still trying to catch up to Amazon’s on-line sales and sizable customer base.
Meanwhile, Bezos has expanded into all kinds of products by buying stakes in e-commerce companies such as drugstore.com and pets.com and pets.com. He’s also set up an auction section on Amazon to tap the excitement generated by the success of eBay, the first Internet auction site. In addition, he made room on the Amazon site for zShops, an area where smaller businesses can, for a fee, sell products.
One reason for Amazon’s success is founder Bezos’s action-oriented management style. Although he carefully plans his company’s future moves, he also wants to avoid the paralysis that cam come from endless analysis and deliberation. As an e-commerce pioneer, Bezos is accustomed to making speedy decisions to take advantage of unexpected or fleeting opportunities. He encourages everyone at Amazon to do the same, even if that means an occasional misstep. Working on Internet time, Bezos would rather lead his troops into the unknown, and fix problems later, than slow down now.
To continue growing and innovating, Amazon must keep recruiting, training, and motivating good managers and employees. Bezos gets personally involved in hiring decisions about top managers, who he trusts to hire the people who will work under them. Because he knoes that a skilled workforce is critical to Amazon’s success, Bezos asks probing questions about hiring techniques when he interviews top management candidates.
Still, Bezos carves out precious time from his hectic management schedule to surf the Web, click around the Amazon site, and, on occasion, wander through shopping malls in search of new ideas. To stay in touch, he goes out of his way to thank specific employees for their efforts, and he reads e-mail messages from customers to find out what they like and don’t like. About one-third of the CEO’s time is devoted to visiting Amazon’s national network of distribution centers, where he answers employee questions reinforces the company’s six “core values”: customer obsession, ownership, bias for action, frugality, high hiring bar, and innovation.
Every December, Bezos and his entire management team pitch in to meet the holiday rush. By wrapping packages for customer shipments or answering customer service phone calls, they all get a better sense of what Amazon’s first-line managers and employees face—and what customers want. This yearly trasditon of hands-on experience also rekindles the managers’ sense of purpose, no small consideration in an industry where change is the only constant.
Case questions
Q1. Which managerial skills does Jeff Bezos appear to be emphasizing at Amazon?
Q2. How does Bezos carry out his interpersonal, informational, and decisional roles at Amazon?
Q3. Why are communication skills particularly vital for managers at a fast-growing firm such as Amazon?
CASE STUDY: CONAGRA SEARCHES FOR SYNERGY
What do Hunt’s ketchup, Orville Redenbacher’s popcorn, Healthy Choice frozen meals, and Slim Jim jerky have in common? All are part of ConAgra’s empire of food brands. With $25 billion in annual sales, ConAgra is the number-two U.S. food products company behind Kraft Foods. Aggressive acquisitions during the 1980s brought ninety different operating companies into the ConAgra family. Now CEO Bruce Rohde is working to lower system wide costs and boost overall profits by improving coordination and cooperation among these diverse operations.
The corporate buying spree took place under Charles M. Harper, ConAgra’s CEO before Rohde. Harper snapped up well-known food brands such as Butterball (turkeys). Swift Premium (cold cuts), and Hunt-Wesson (salad oils and tomato-based foods). Once under the ConAgra banner, these different companies were encouraged to continue operating as independent divisions. ConAgra had no corporate computer system; instead, the divisions used their own systems for accounting. In addition, each division continued to sell through its own sales force, forcing supermarket chains to arrange separate purchases with each division. Harper also started the Healthy Choice line of low-fat foods after suffering a heart attack and changing his diet to emphasize healthier fare.
ConAgra’s highly decentralized structure worked well as long as sales and profits were growing at a strong pace. By the time Rohde was named to the top slot in 1996, however, consumers were spending more on restaurant meals, which meant they weren’t spending as much on groceries for home-cooked meals. At the same time, the supermarket chains were consolidating through mergers and acquisitions, which gave the stores even more bargaining power when dealing with ConAgra’s and other supplies. Meanwhile, competitors Kraft and Quaker Oats stepped up their trade promotions, offering special displays and other inducements to solidify relationships with major food chains. The road ahead looked extremely challenging for ConAgra.
As CEO, Rohde has cooked up a new recipe for synergy, reorganizing ConAgra’s diverse collection of companies into three divisions. The food-service division already accounts for half of the corporation’s sales revenues and could potential contribute even more to the bottom line. The retail division sells ConAgra products such as Parkay margarine and Peter Pan peanut butter to grocery stores and supermarkets. The agricultural products division sells fertilizer and other products to farm producers. As part of this reorganization, ConAgra is closing more than a dozen inefficient factories and laying off 7,000 workers. So far, this reorganization has helped the company cut its costs by $100 million, a figure that could soon rise to $600 million in annual cost saving as reorganization continues.
ConAgra is also preparing a coordinated program to cross-sell brands inside supermarkets. For example, the company is considering offering a supermarket chain like Kroger’s a special display featuring various foods for backyard barbecues. The display might hold bottles of Hunt’s ketchup, cans of Van Camp’s baked beans, and packages of Healthy choice bread—plus a sign reminding shoppers to pick up a package of Armour hot dogs in the refrigerated meats section. This enterprising cross-sell approach is designed to help Con Agra’s powerful brands sell each other while giving supermarkets an attractive tool for sales building.
Today, ConAgra is continuing to acquire food-related businesses such as Seaboard poultry. It is also readying a counterattack on rivals with a fatter advertising budget for consumer campaigns to support its brands. But the environment remains challenging, and competitors are not letting up. Can Rohde’s recipe successfully combine such disparate units as Marie Callender frozen foods, Egg Beaters egg substitutes, and Monfort beef products into one highly profitable corporate entity?
Case Questions:
Q1. What management actions seem tjo have contributed to inefficient operation of ConAgra’s subsystems?
Q2. What signs of entropy should ConAgra’s management be alert for—and why?
Q3. What other kinds of programs might ConAgra develop to improve synergy among its brand-name food products?
CASE STUDY: ENRON POWERS UP THE ENERGY WORLD
Enron is putting new power into the energy industry. U.S. power companies enjoyed highly regulated, stable environments. Houston-based Enron, like other companies operating interstate pipelines, was forced to follow complex government rules for buying and selling natural gas. Although the regulations simplified the company’s planning process in many ways, it also prevented Enron from adjusting its pricing, regardless of actual supply and demand.
That inflexibility became a liability, when in the mid-1980s, oil prices dropped lower than gas prices. Many utilities saw a chance to lower their costs by switching from gas to oil for their generating plants, creating a two-pronged problem for the pipelines. First, Enron was locked into multiyear contracts that forced it to buy from gas pjroducers at specified prices. And second, the company could not deviate from federal pricing rules, so it was unable to lower prices to retain its utility customers.
CEO Kenneth Lay quickly realized that the industry was headed for trouble. He tried, without success, to persuade government regulators to change the rules. Eventually, to avoid financial ruin, Enron and many other pipeline companies abandoned their purchasing contracts, which led to years of legal battles. Meanwhile, the regulators finally changed the rules. Now the pipeline companies are free to buy and sell gas supplies in the marketplace.
In deregulation, Enron’s managers saw enormous opportunity where competitors dangerous, uncharted waters. Up to that point, nobody had thought of buying and selling gas and electricity as if they were commodities such as pork bellies. However, Lay and his team knew that utility companies were unsettled by the unaccustomed up-and-down movement of deregulated gas prices. So they customized their offerings to balance each utility’s specific requirements for gas supply and pricing. Whether a utility was interested in steady prices over a certain period or needed uninterrupted gas supplies for peak times, Enron was ready to help—at a profit.
Gas deregulation was just the beginning. Within a few years, the U.S. electric power industry was also deregulated. Once again, Enron’s management recognized the potential for new, profitable activities, Building on its experience in buying and selling natural gas, Enron was able to outmaneuver competitors by forging highly sophisticated deals to buy and sell electric power across a sprawling network of suppliers and customers. This head start allowed the company to start and keep trading power supplies at volumes that are 25 percent higher than its rivals.
As deregulation spread to other countries, Enron began to widen its reach as well. Country by country, it became the largest energy trading company in Europe, which allowed management to monitor issues affecting future energy prices closely, such as regional weather patterns. The company also entered the Indian market by building a giant generating plant in Dabhol, south of Bombay. Enron managers became so skilled at navigating India’s legal structure that the contracts they negotiated led the country to change its laws on business arbitration, currency controls, and insurance.
One of Enron’s latest ventures is buying and selling excess bandwidth on the fiber-optic networks that carry Internet connections. Telecommunications firms traditionally offered only long-term, fixed-rate contracts for connections to such networks—the kinds of deals that were once all too common in the energy industry. Sensing opportunity, Enron acquired a specialized software company to help develop a system for switching surplus bandwidth with only fifteen minutes of lead time. The company then partnered with Sun Microsystems to create a gigantic distribution network for fiber-optic bandwidth. Now Enron is buying and selling bandwidth, energy, pulp and paper products, coal, and plastics, what industry will Enron energize next?
Case Questions:
1. Identify how dimensions of the task environment created new opportunities for Enron.
2. Describe how elements of Enron’s general environment affected its ability to exploit new opportunities.
3. Discuss the various ways in which Enron adapted to its environment. What other adaptations would allow Enron to maintain its market leadership in the power industry?