Reference no: EM13864393

The Harrison Company Case

General Information

The Harrison Company, a public company headquartered in State College, PA is facing a time of crisis. (See Attachment 1 for financial statements.) The company is a mid-sized regional retailer. It has 80 stores in seven states, primarily in the Northeast. It also owns two equally-sized distribution centers, one in Pennsylvania and one in Massachusetts. All of its stores are in rural areas and generate exactly $600,000 per store in sales per year (to simplify the case). As shown in the attached financial statements, sales and profits have been dropping over the last three-year period. You have been brought in as president to move the company in a new and better direction. The previous president has just retired at age 70, is no longer on the board of directors, and has broken all contacts within the company.

Although your predecessor did not see the need to employ an explicit strategy for running the business, competition from retail chains, such as Wal-Mart and Dollar General, has become more intense. In the past, your company has been somewhat shielded from competition by its stores' rural locations. Now there is a Wal-Mart store within 10 miles, on average, of each of your stores. Your eight home office employees have not developed advanced business skills. For example, your marketing manager does not prepare either store or company-level sales forecasts.

As you look at the company situation, there does not appear to be an obvious choice between a low-cost strategy (such as that followed by Wal-Mart) and a differentiation strategy (such as that followed by Nordstrom). Next year's plans, which you can alter, call for the purchase or construction of eight new stores, as well as the renovation of the Pennsylvania distribution center. Planned new store locations include three stores in West Virginia, two stores in Rhode Island, two in Vermont, and one in New York. The board wants to know if you agree with this specific action plan. There have been no store openings, closings, or changes to the distribution centers last year or this year.

There are several immediate concerns that face you upon taking over as president. One of your store managers, who has recently been fired, has gone to the press with accusations that your company has been buying very inexpensive clothing from a Honduran company whose employees face slave-like conditions. He claims that the main reason for his being fired was that he insisted on raising this issue with top management. There seems to be no documentation within the company related to this issue.

As with many of your competitors, you find that the company is actively discouraging the entry of unions into your company. Although this seems to be taking place primarily by store managers, it would seem reasonable that company headquarter personnel are directing this effort. This resistance, bordering on being illegal, seems to be driven by the company's culture.

Harrison Company has traditionally supported a local charity near the company headquarters, which is the favorite charity of the previous president. Over the past several years, substantial contributions have been approximately $1,000,000 a year. The company has also supported a wide variety of other community endeavors in the general locale of some of the stores, such as sponsoring little league baseball teams. The total support for these other organizations has been roughly $25,000 per year in total. You wonder if these donations can be maintained, given the company's current financial condition. If cutbacks are necessary, how much should they be and how should they be phased in?

Your reaction to the report

As with most consultant reports, this report provides only a starting point for strategic development. You are struggling to determine what to believe and how it would affect not only operations, but more importantly the strategy that you are developing. One of your biggest challenges is to determine what aspects of the report to communicate and to whom. On the one hand, many people do not have the expertise to make much use of this information. Yet, withholding information may have a negative effect on morale.

Company Culture and Internal Considerations

During your interview with the seven member board of directors, you received the impression that there was still a great deal of loyalty to the previous president and his past decisions. The board appeared to be quite conservative. Three directors were focused only upon company performance. It is no coincidence that these three directors own 65% of the company stock. Although sales and profitability are often correlated, you had the impression from the board that profitability is a strong priority, both in the short and long run. Presently, the company has only one class of common stock (voting). Three of the other directors are CEOs from companies in other industries.

Having met with your home office personnel, both collectively and individually, you have become somewhat concerned. None of the team members demonstrate leadership ability. They seem to be "yes" people. When asked direct questions about their areas of expertise, none are able to give a coherent or concise answer. They do not seem to have an understanding of either the big picture or specific details in their area. There is commonly a great deal of silence when you ask questions during meetings.

A different consulting company had been hired the previous year to assess the morale of people at the company headquarters. This consultant's report had been based upon anonymous individual meetings and the results seem to have been quite direct and blunt. Conclusions included:

1) There was significant infighting between people.

2) There was no accountability for decisions and, in fact, actual clear decisions were rare.

3) There were many examples of passive-aggressive behavior.

4) Six of the eight people said that they would not recommend the company as a place to work.

5) Employees felt that the company was in financial difficulty and moving in the wrong direction. Most felt insecure about their jobs.
You have no information about the morale of the stores' workforce or store managers. You have decided that you must tour several stores in order to assess morale and see the overall conditions of the stores. Until you have time to do this, you must make assumptions about store morale.

Question 1 - Implications of Integrated Business Processes: Will you develop an offensive strategy or defensive strategy and why? What will be the specific key aspects of your strategy? Describe how each of the functional areas will be part of your strategic plan. How do these functional plans fit together and influence each other in support of your business strategy? What generic strategy (i.e., low cost or differentiation) will you adopt as the new head of Harrison Company? Explain. Provide an overview of the aspects of your business strategy that will support your generic strategy. Will your store decisions reflect a retrenchment strategy, a hold strategy, or an expansion strategy? How long and to what degree can your generic strategy be implemented over the future five-year period? Because this is an outline of your strategy, it should restate specific conclusions from your previous analysis. Do not downplay the importance of this section.

Question 2 - Ethical and Socially Responsible Decisions: Briefly identify all of the various social and ethical issues facing Harrison Company. Provide this list in a table, stating each issue in a few words. Make each issue clear.

Identify one issue from the list that relates to environmental sustainability and discuss it in a few sentences. Then, select one different ethical dilemma from your list. You will use this one ethical dilemma for the balance of your answer to this question.

Identify the various major stakeholders that could be affected by this dilemma and the ones who could influence the decision. Identify three possible responses to this dilemma and suggest possible consequences (for the major stakeholders) for each of the three responses. Provide a specific action plan for dealing with this specific issue.

Discuss why (or why not) your plan is ethical, socially responsible, and just. How does this action plan affect your business strategy or vice-versa?

Question 3: - Synthesizing/Analyzing: None of your functional managers have adequate expertise and you must develop the analyses that you need to make both functional and strategic decisions. Provide a detailed analysis of the three functional areas listed below. Provide a brief conclusion for each.

a. Marketing: Prepare a five-year sales forecast for the company. List and explain/quantify each factor that went into your forecast (e.g., past three year company sales trends). Do not rely solely upon past sales trends. Make this a high level forecast and include broad items that would affect strategy. Show your calculations in a table and, if needed, explain your calculations so they are clear.

Analyze your marketing efforts in terms of product, price, place, and promotion. Be specific for each of the four items and pay particular attention to the strategic implications of your pricing plan and product mix. What might be some of the financial, logistical, and strategic implications of your marketing plan?

b. Finance: Prepare financial analyses using data from the financial statements. Use specific ratios or other measures to assess the financial strengths and weaknesses of your company using appropriate baseline comparisons. Provide this in table form. Provide the formula for each item used. Address any other issues in the case that might affect the current financial position. Be sure to address Liquidity, Safety (e. g., leverage), Profitability, and Efficiency ratios.

What is your overall financial position and how should it be handled? If needed, what is an appropriate way to finance your strategy and what funding constraints might affect your strategy? Explain. Describe the specific financial linkages and effects on marketing, logistics, and strategic initiatives.

c. Logistics and Operations: Discuss supply chain issues and possible areas for improvement. Desired improvements should be stated specifically. The logistics areas should address all parts of the supply chain which may or may not be limited to the following six items:

i. Supplier transportation to Harrison's distribution centers
ii. Storage (inventory) at the distribution centers
iii. Transportation from the distribution centers to the stores
iv. Storage (inventory) in the stores
v. Information needs, covering all the above items including merchandise purchasing and store re-ordering

Item iii is one of the most important, strategically. Given your strategy, you will increase the number of stores (expansion strategy), decrease them (retrenchment strategy), or keep them the same (holding strategy). Although you do not need to draw a map (see Attachment 2), you should identify the number of stores affected by location in a table. Changes in distribution centers, if any, should also be outlined in this table. You will address these issues further when you discuss your strategy.

In terms of store operating expenses, there are several things to consider. Are the stores the right size? Constraints of the case are that you own all of your stores and you cannot lease (you may only purchase) new stores. You cannot relocate to a different store in the same town.

Prepare an additional operating analysis which outlines the planned employee load schedule for a store. Provide this in table form and clearly explain your calculations. For example, you might state that all Saturdays throughout the year should be staffed by two employees. Your analysis should reflect the number of hours available per store. How might sale forecasts be important for making these logistical and operating decisions? What might be some financial implications for the company?

Question 4 - Identifying industry and global trends: What specific industry and global trends might have the greatest potential to affect your company and its business strategy? What would be the specific effects or constraints on your strategy? What other industry and global trends are worth watching? Why? (Learning Goal #4) List the industry and global trends separately.

Question 5 - Leadership and Group Dynamics:

a. What specific leadership actions and behaviors must you take to stabilize the company and allow you to achieve success for one of your specific key aspects of strategy (as described in your answer to Learning Goal 1 below)? How will you interact with and demonstrate leadership skills in dealing with the board of directors? Make sure to link your leadership actions directly to your strategic initiative. In answering this, you should address specific leadership theories. For example, what are the commonly identified types of power and which ones will you use as part of your leadership style?

b. You believe the consultant's report about home office morale. Discuss how you would address infighting, unnecessary arguments, and the quiet resistance between home office personnel. Specifically identify the organizational behavioral aspects of this problem using existing theories. For example, list generally accepted concepts for dealing with conflict and identify which ones you will use. Another example is that if you suggest "better communication" as a behavior to be developed, then be more specific. How, specifically, would you work to change individual and group behaviors? How long will it take to facilitate these changes in behavior? What will you do if the identified actions that you just described are resisted by one individual?