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Management Mistakes and Successes

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					                              Management Mistakes and Successes
                                     Robert F Hartley



Kmart: From Mediocrity to Leade rship to Jeopardy .......................................... 2
Scott Pape r: Turnaround Trauma ......................................................................... 2
IBM: A Giant Falters But Then Arises .................................................................. 3
Harley Davidson: Finally a Comeback .................................................................. 4
The Saving and Loan Disaster: Greed Running Amuck ...................................... 5
Coca Cola’s Classic Planning Blunder................................................................... 6
Euro Disney: Bungling a Successful Format ......................................................... 7
Contrast – Southwest Airlines: Finding A Strategic Window of Opportunity .. 8
Herman Mille r: A role model disappoints ............................................................. 9
Reebok vs Nike: Sneaker Wars .............................................................................. 11




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Kmart: From Mediocrity to Leade rship to Jeopardy
   Replace those in the company who are incapable of accepting change
   Be aggressive, voluble and full of ideas
   Move aggressively and quickly in making changes
   Use technology to give yourself more control over your business
   If you don’t experiment, you will never know
   Plans may be good but are not always implemented properly. The fault may lie
     within the organization, resource allocation or within top management itself
   Do not fail to delegate and develop key executives
   Although maintaining a centralised management structure of non-delegation
     has its faults (hinders creativity), an autocratic approach makes it easier to get
     things done
   Heavy overhead can kill business
   Front-runners must stay sharp (the only way to go is backwards)
   Neglect your core business at your peril
   Attention to the core business does not rule out diversification – can the
     resources be allocated to the diversification or will that allocation of resources
     hurt the core business?

Scott Pape r: Turnaround Trauma
    Al Dunlap was brought in to turn a 115 year old company around (he was
       nicknamed “Rambo in Pinstripes”)
    The same day as Al Dunlap took over as CEO of Scott Paper, he invested $2
       million of his own money in the business to show his confidence that the
       company can be turned around
    On his first day Al Dunlap offered three of his former associates top jobs in
       the company
    On the second day he disbanded the powerful management committee
    On the third day he fired none of the eleven highest ranking executives
    On the fourth day he destroyed four bookshelves crammed with strategic plans
       of previous administrations
    Some executives believe in instituting major challenges as quickly as possible
       because the organization is expecting it and it will be better prepared to make
       the adjustments needed than it ever will be again
    Other executives prefer to move more slowly after all the pros and cons can be
       weighed – sometimes such delays can lull an organization into a sense of false
       calm and make for even more trauma when the changes eventually come
    After only two months at the job, Al Dunlap announced four major goals for
       the coming year:
           o Divest the company of non-strategic assets
           o Develop a core team of accomplished senior managers
           o Undertake a one-time-only global restructure to trim up the company
               (11,000 out of 25,900 positions were eliminated)
           o Develop new strategies for marketing
    Bloated bureaucratic organizations are the epitome of inefficiency and waste –
       but remedies can be overdone: don’t cut off too much bone and muscle.


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      The results of Dunlap’s cost-cutting frenzy resulted in a rise in earnings by
       71% in the second quarter. In the third quarter, earnings inc reased by 73%.
       Fourth quarter earning were 159% higher than in 1993 (Dunlap took over in
       94)
      However, Scott Paper lost market share of 1% in the bath-tissue market and
       5.2% in paper towels.
      But Dunlap still said, “I am still the best bargain in corporate America”
       “Slash and Burn” techniques tend to bring great short-term results, but leave
       the company with longer term problems
      Cut the deadwood but not the bone and muscle
      A well- structured organization would appear to be best in many
       circumstances, but it tends to be too rigid, relying on rules and procedures and
       as a result is slow to adapt and change
      Some of the worst decisions in business concern buying and selling.
      Charisma, new blood and decisive leadership can turn around a company
      Strategic plans often delay change implementation – it is often a vehicle for
       procrastination and blame-dilution

IBM: A Giant Falters But Then Arises
   In 1993 IBM reported a $5.6bn loss for the fourth quarter of 1992 – a yearly
      deficit of $4.97bn – the biggest annual loss in American corporate history
   42,900 jobs went in 1992 and another 25,000 were slated for termination in
      1993
   IBM got fat and complacent over the years
   Akers, the chairman of IBM, recognised that the company was in trouble in
      1991 and attempted to decentralise the business structure. He saw a crucial
      need to cut fat from the organization
   Akers’ more radical proposal was to break up IBM and divide it into 13
      divisions and give each division more autonomy
   IBM was lagging behind Compaq, Sun and HP in producing affordable high-
      quality fast PCs. AT&T could sell a machine for $12.5 million that
      outperformed IBM’s $20 million mainframe
   Louis Gerstner was appointed as CEO to replace Akers who lost the support of
      the Board. Gerstner was an outsider, an unusual step for IBM as they had a
      policy of promoting from within.
   It isn’t always good to promote from within because by doing so you are
      happy with the status quo but always promoting from outside the company can
      play havoc with trainees who will lose faith in their career path within the
      company
   Resistance to change can be combated by good communication with
      participants about the forthcoming changes and by involving employees in the
      change process.
   Change in a gradual fashion is much easier on staff, but abrupt changes can
      also be more effective in certain circumstances (see the section on Scott Paper
      and Al Dunlap)
   IBM was guilty of complacency, conservatism and conceit – which leave no
      incentive to undertake aggressive and innovative acitons, causing growing
      disinterest in such important facets of the business as customer relations,
      service, and even quality control. They also inhibit interest in developing


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       innovative new products that may cannibalise existing products and disrupt
       entrenched interests
      IBM had a diminishing payoff on massive R&D expenditure and bloated costs
      IBM gave away the game – they left microprocessors to Intel and software to
       Microsoft, preferring to concentrate on other issues
      In 1994, Gestner turned the company around – it’s first profitable year since
       1990. Annual expenses were reduced by $3.5bn and its stock nearly tripled in
       price. Critics thought that Gerstner’s approach was not aggressive enough as
       he discarded the idea of breaking up the company and opted for “deep-
       cleaning and redecorating”.
      People thought that he was moving too slowly, they were after an Al Dunlap
       style approach “In an industry that moves at the speed of light, there is very
       little time for that” (slow restructuring).
      IBM concentrated on R&D – 1,298 patents in 1994 the most ever issued to
       one company in one year
      IBM was transformed into a lean and mean organization (in 1994, 185,000
       employees less than in the mid 1980s and $1.2bn of infrastructure sold off) –
       “Acting Small”
      Adversity need not be forever – firms can turnaround and come back over
       time, despite strong competition

Harley Davidson: Finally a Comeback
    Harley Davidson motor cycles date back to 1903, but by 1960 it had destroyed
      all US competitors and had a 70% of the motorcycle market
    Despite their dominance, growth was minimal compared to the growth of the
      motor car market
    In 1964 Honda shook up the whole market by offering lightweight cycles and
      advertised towards the new customer. In only a few years Harley Davidson’s
      market share dropped to only 5%
    AMF (recreational equipment and bowling) bought a controlling stake in
      Harley Davidson in 1965
    Honda was making high quality motorcycles, Harley’s quality control was
      very poor – “quality was going down just as fast as production was going up”.
      50-60% of motorcycles failed quality control tests at Harley, only 5% at
      Honda
    Vaughan Beals bought out AMF’s share in Harley and his massive lobbying
      for tariff protection by the government paid off and Harley began to build
      market share
    Beale took a front line approach to marketing Harley – he drove his Harley to
      rallies; he helped to establish and grow the Harley Davidson Owners Group
      (HOGs) and spoke to them about their concerns etc
    In 1986 Harley Davidson requested that the tariffs be taken off imports one
      year earlier than planned – their confidence was back
    Japanese operating costs were 30% lower than Harley Davidson’s because of
      professional management and attention to detail
    Beal divided each plant into profit centres, with managers assigned total
      responsibility within their particular area
    They formed quality Circles to increase employee involved in the quality
      control process. Quality circles are worker- managed-committees that meet


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       regularly to talk about production problems, plan ways to improve
       productivity and quality and resolve job-related gripes
      The introduction of quality circles had a marked improvement on the
       productivity of Harley Davidson – defects were down 70%!
      Harley’s strong point was an unflappable base of loyal customers – 92% of
       customers remained with Harley even during the bad years
      Harley also began to crack down on its copyright issues – others were using its
       name on inferior merchandise. This helped to keep the Harley name associated
       with quality
      Harley increased its product range with 20 models by 1991 ranging from
       $4,500 to $15,000
      Harley honed in on a new market: Rich Urban Bikers (managers, professionals
       etc) who brought the company back from the brink
      By 1993, Harley Davidson had a new problem: supply could not meet demand
      Visionary Leadership:
           o Challenge the process: be a pioneer and encourage innovation and
               people with ideas
           o Be enthusiastic: Inspire others through personal example to share in a
               common vision
           o Help others to act: be a team player and support the efforts and talents
               of others
           o Set the example: Provide a consistent model of how others should act
           o Celebrate achievements: Bring emotion into the workplace and rally
               hearts as well as minds
      You don’t solve problems by throwing problems at them
      Harley took on the strategy of going slowly with its production, being careful
       with quality and refraining from heavy debt commitments. This raised the risk
       of permitting competitors to gain market share in the US and especially in
       Europe
      You must weigh up the risks of conservative planning versus aggre ssive
       planning
      Certainly a product has to be unique, but though most firms strive for this
       differentiation, few achieve a mystique

The Saving and Loan Disaster: Greed Running Amuck
   Sunbelt Savings Association
    McBirney formed an investment group that began buying small Savings and
      Loans companies and called it Sunbelt Savings Association which controlled
      $3.2bn
    Sunbelt was nicknamed “Gunbelt” because of the risks it took (loaning $125m
      to an inexperienced investor in his 20s who ended up losing $80m)
    Sunbelt spent millions on parties, aircraft and entertainment in the early 1980s
    When the regulatory authority began auditing all of the savings and loan
      companies after a large company collapsed (due to high risk investments that
      didn’t pay off), the bulk of the savings and loan companies in the Sunbelt
      empire were declared insolvent. Many of the collateral properties were
      declared over-valued. Then real-estate prices plummeted.
    The government files a lawsuit against McBirney and other insider
      shareholders – nearly $13 million in common and preferred dividends had


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       been taken out in 1985 and 1986 at a time when Sunbelt’s capital was rapidly
       evaporating

       General Discussion
      By 1988, 503 of the USA’s 3178 thrift institutions were insolvent. Another
       629 had less capital on their books than required by law. In 1987 630 of these
       companies had lost an estimated $7.5bn. More than half of these companies
       were based in Texas
      The motivation for taking wild risks with deposits was that individual
       accounts were insured up to $100,000 b the Federal Savings and Loan
       Insurance Corporation – but even they could not cope without Congress
       contributing billions of dollars
      Taxpayers eventually footed the bill

       Savings and Loans Companies had to Re-Evaluate Their Mission
      Determining your mission involves:
           o Assessing the environment and how it is changing or is expected to
              change
           o Appraising competitive factors and how these may be changing
           o Weighing the particular strengths and weaknesses of the company
      Don’t make mission statements too broad, but narrow definitions restrict
       perspectives and the grasping of different opportunities

       Leadership Issues Related to the Savings and Loan Debacle
      Leadership is vulnerable to abuses:
          o Overreaching
          o Not carefully assessing risk vs rewards in proposals
          o Operating beyond reasonable means
          o Not keeping a tight rein on costs
          o Failing to guide the organization with the best interests of the
               stakeholders in mind
      Such abuses are tempting in times of wild optimism
      Discipline is:
          o Controlled behaviour
          o Careful evaluation of actions
          o Quest for disciplined growth
          o Not being too conservative – you risk missing opportunities and give
               competitors an advantage
      Adversity can create opportunities
      Any business firm faces a dynamic environment; nothing can be expected to
       remain constant. This requires some degree of adaptability

Coca Cola’s Classic Planning Blunder
    By the mid 1970s the Coca Cola Company was a lumbering giant, and this
      was reflected in its performance
    Pepsi was gaining a lot of headway – the Pepsi Challenge proved time and
      again that taste testers preferred Pepsi




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      In 1980 Robert Goizueta took over as chairman of Coca Cola and stated that
       “Nothing is sacred to coke anymore” – in other words, changes were in the air
       he announced ambitious plans to diversify beyond the soft drink industry
      Marketing research still proved that taste testers preferred Pepsi so the only
       logical thing to do was to change the flavour of Coke.
      By September 1984 they produced a sweeter and less fizzy version of coke
       with a soft, sticky taste – the taste out-performed Pepsi in every taste test.
      Coke predicted $200 million boost in sales from “New Coke”
      150 million people tried New Coke. Most comments were favourable.
      But protests mushroomed. In the first four hours, the company received about
       650 calls. By mid-May calls were coming in at a rate of 5,000 per day, in
       addition to a barrage of angry letters. People were speaking of Coke as an
       American symbol and a long-time friend.
      Company executives were worried about a consumer boycott and they dec ided
       to re- introduce Coca Cola under the name “Coca-Cola Classic” and keep the
       new recipe on the shelves as “New Coke”
      Old Coke’s comeback drove the share price up to the highest level in 12 years
      But Coke spent $4 million and 2 years to market research – 200,000
       consumers were contacted during this time
      The market research was flawed:
           o Participants in taste tests were not told that by picking one cola they
                 would lose the other
           o Only 30,000-40,000 of the taste tests conducted involved the specific
                 formula for the new Coke
           o Preferences for sweeter products diminish with use and this was not
                 taken into account
           o The symbolic value of coke was not taken into account either
      Beware of tampering with the original image
      Tampering with a major product still in high demand may be risky
      Major changes are often better introduced without immediately discarding the
       present
      Sheer advertising expenditure does not guarantee effectiveness

Euro Disney: Bungling a Successful Format
    Three amusement parks failed one year before Euro Disney opened just
      outside Paris in 92. Those failures did not concern Disney “We are spending
      22bn Francs before we open the door, they only spent 700m”
    Euro Disney cost a total of $4.4bn. The French Government invested $160m
      and other investors contributed $1.2bn
    Disneyland was already successful in Tokyo (opened 1983) By 1990, 16
      million people passed through the gates each year. Profits were at $150m per
      year (revenues at $988m)
    At the end of 1992, it became clear that the numbers were not being met –
      there was a recession and people were bringing their own food and not staying
      in the hotels for many nights. Park admission prices were also very high
      ($42.25US for adults)
    Skimming Pricing: setting prices assuming that demand will not be determined
      by price and therefore the price can be high with large profit margins



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      Penetration Pricing: Setting prices assuming that demand will increase with
       lower prices and decrease with higher prices and therefore there are limitations
       on your profit margin
      Patronage was up, but spending by each visitor was down
      There were a few cultural blunders made:
           o A no alcohol policy (wine is customary for lunch and dinner in France)
               and this discouraged visitors
           o It made mistakes with predicting the peak periods and had to lay off a
               number of staff when there were fewer visitors, but France has very
               strict labour laws so they found this to be very difficult
           o Tour bus drivers were not catered for properly, so tour companies did
               not recommend visiting Euro Disney as much as they would ha ve
               otherwise
      Euro Disney lost $921m in the first fiscal year - $2.5m per day: non-operating
       costs were extraordinarily high. Efficiency and economy became the
       watchwords – it took 20 months to start ironing out the operational issues
      The English Channel Tunnel brought many Britons to France and Euro Disney
      Disney management failed to research the culture thoroughly enough
      By September 1995, Euro Disney became profitable.
           o The European banks loaned Euro Disney $500m and forgave 18
               months worth of interest charges and deferred all principle payments
               for 3 years
           o The Walt Disney Company spent $750m in further investment in Euro
               Disney
           o The Saudi royal family invested up to $500m for a 24% stake in Euro
               Disney in 1994
      The turnaround ($35m in profit by 1995) was attributed to a new marketing
       strategy:
           o Entry prices and prices within the park were slashed
           o A new high-tech attraction that mimicked a trip to the moon
      Critics saw the turnaround coming only from deals struck with creditors to
       suspend debt – not a sustainable situation especially when the payments
       resume in three years time
      Beware of cultural differences when marketing overseas
      Great successes often don’t have staying power
      Financing through debt is highly risky and vulnerable

Contrast – Southwest Airlines: Finding A Strategic Window of Opportunity
    Herb Kelleher, flamboyant CEO of Southwest Airlines, exploited a market
      niche to grow a 4-plane airline into a 141 planes and took on the big airlines at
      the same time.
    Kelleher’s local short-distance no-frills flights attracted many passengers
      because:
          o They were cheap (average of $58 US)
          o They took passengers to smaller airfields, rather than the congested
              larger fields
          o Flights were frequent
          o Good service



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           o Fun (in- flight trivia contests, instructions delivered in “rap” and prizes
                for the passenger with the largest hole in their socks!)
      They were so successful that many larger airlines simply could not compete
       and stopped servicing many of the short routes
      In many instances, Southwest was competing with car and bus tra vel “The
       traffic is already there. We take it off the highway and put it on the airplanes”
      When Southwest entered into the Californian market, it really hurt its
       competitors – they were unable to maintain certain routes which were main
       “feeders” to the rest of their national travel network
      Secrets to Southwest’s success are:
           o Cost containment - all aircraft are 737s so maintenance costs are
                reduced, 70% of Southwest aircraft have a 15 minute turnaround time
                between flights which include cleaning, servicing, unloading and
                loading passengers, no assigned seats, baggage was not transferred to
                other planes (that was the passenger’s responsibility), re- usable plastic
                cards for boarding passes, peanuts and drinks offered but no meals.
           o Employee commitment – negotiated flexible work rules with the
                unions, high productivity meant a leaner crew (no layoffs necessary
                when times were tougher), sense of fun in the workplace (“Fun is a
                stimulant to people. They enjoy their work more and work more
                productively”)
           o Conservative growth – expansion was only undertaken when enough
                resources could be committed to go into a city with 10-12 flights a day,
                rather than just one or two – concentrating on a few areas, rather than
                dissipating strength by trying to compete everywhere.
      The most powerful advantage a company can have against a competitor is
       lower prices, better service and superior quality
      Competitive advantage can also be gained by unlocking a niche market:
           1. Identifiability: can those people who constitute the niche market be
                easily identified?
           2. Size: Is the niche market big enough to be viable?
           3. Accessibility: can you promote your product or service without too
                much waste?
           4. Growth Potential: Does the niche market show promise for long-term
                growth?
           5. Absence of vulnerability to competition: Is the niche market already
                being tapped? If so, are you competitive enough to break into the
                market and capture significant market share?
      No competitive advantage is more powerful than a dedicated workforce

Herman Mille r: A role model disappoints
    Herman Miller is an office-furniture maker in Michigan and has long been
     celebrated as a model of superb employee relations and it stood at the
     forefront with modern environmentally friendly policies such as:
         o The company organised “silver parachutes” for employees who lost
             their jobs in an economic downturn so that they received big cheques
         o Herman Miller limited top execs salaries to 20 times that of the line
             worker (it was not uncommon to find top execs earning 100 times that
             of a line worker)



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           o Employees were organised into work teams and every six months both
               workers and employees would evaluate each other
           o They ensured career development prospects for employees by
               scrapping nepotism in the company – the owner’s family was not even
               allowed to work in the company in any capacity.
      Management kept a paternalistic relationship with employees – they practiced
       a participative management style by involving them in management processes.
         Dictatorial        Authoritative           Participative        Democratic
                            Degree of subordinate involvement in
               Least           planning and decision making               Most

      The advantages of a participative management structure are:
           o People tend to be more cooperative and enthusiastic when they have
               some involvement in the planning
           o Better decisions are usually more common when different experiences
               and points of view are raised
           o Employee development is maximised
      The disadvantages are:
           o Consultation takes time and many decisions are too minor to warrant
               that sort of time commitment or a decision has to be made quickly and
               there is no time for commitment
           o No benefit is likely for new or untrained employees
      The best managers use participative techniques whenever they can, especially
       when the decision affects the employees – but they choose their opportunities
       carefully
      In 1995 Herman Miller was a $1billion company, but sale were only
       $800million in 1989 so the growth was very slow – profits slid from $40m in
       the 80s to $4.5m in 1995. In 1992 it recorded a net loss of $3.5m – its first loss
       ever.
      In 1992J Kermit Campbell was named chairman and moved quickly to cut
       costs by:
           o firing several top execs, including an employee who had been with the
               company for 20 years (this type of employee treatment was unheard of
               at Herman Miller)
           o Closing plants in Texas and New Jersey as well as several showrooms
      Herman Miller was rapidly losing its reputation as the best company to work
       for by Campbell said, “Survival is more important than maintaining a pristine
       relationship with workers”
      Campbell announced his retirement only two months after taking the job. He
       was replaced by Michael Volkema
      Herman Miller started losing profits and market share because:
           o They made high quality, high cost furniture. In the past there was a
               large market for such office furniture. Now consumers were turning
               towards mid-quality low cost furniture
           o They changed the type of wood used for their best selling office chair
               on environmental grounds (the wood was at risk of becoming
               endangered) and they lost a lot of sales
           o They spent $11m on waste-to-energy heating and cooling which was
               environmentally friendly and could save money in the long run, but the


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               savings would not be as much as if they would have invested that
               $11m
           o They miscalculated the rise of the home office and their receptiveness
               to high priced office furniture
           o They didn’t adapt to competitive forces
      Don’t grow the company too fast that a high percentage would have to leave in
       times of difficulty (be lean and mean)
      Shareholder discontent is unhealthy for executives: stakeholders have the right
       to agitate for drastic shake-ups when the company fortunes as reflected in the
       stock price show little promise of improving.

Reebok vs Nike: Sneaker Wars
Reebok
    Reebok goes back to the 1890s when Joseph William Foster made the first
       known running shoes with spikes.
    In 1958 the Reebok company was formed by Foster’s grandsons and in 1979,
       at the height of the running shoe boom, three models were introduced into the
       US market. Although they were the most expensive shoes on the market,
       demand soon outgrew supply
    By 1981 sales were $1.5 million
    Reebok anticipated three major trends that would transform athletic footware:
       the aerobic exercise movement, the embracing of sports by women and the
       trasference of athletic footware for street and casual wear.
    Growth exploded (especially with the introduction of the first-ever athletic
       shoe designed for women) and sales soared from $13 million in 1983 to $307
       million in 1985 – sales tripled in one year, reaching $919 million in 1986. $1.4
       billion was reached by 1987 – and $2.7 billion was reached by 1991
    In 1993, a company publication stated that their objective, “is to become the
       best, most innovative and exciting sporting goods company in the world”.
    In 1987 Nike had sales of only $900m while Reebok’s was soaring at $1.4b.
       But Reebok’s sales slowed and by 1990, Nike overtook it with $2.24b in sales
       compared to Reebok’s $2.16b in sales. Reebok began to steadily lose ground.
    Part of the shift could be attributed to Bike’s savvy advertising and to its two
       well-paid endorsers: Michael Jordan and Pete Sampras. But as the mid 90s
       approached, Reebok’s internal flaws became more and more obvious.
    As sales increased so rapidly in the mid 80s, Fireman, who was Chairman and
       CEO gave up his position to a management team more experienced in
       handling such a large company. While Fireman (who owned 20% of the stock)
       was busy building golf courses on Cape Cod, the new management team
       proved to be inept. The company went through three different top managers in
       five years.
    In August 1992, Fireman took charge and wasted little time in bringing in a
       new team and planned an aggressive thrust back into the market.
    Reebok attacked Nike on the basketball market. Jordan was retiring from
       basketball and Reebok signed up Shaquille O’Neal (the next enduring
       superstar) to promote its products for $3m in 1992
    Reebok advertised its new “instapump” shoe (using a pump instead of laces)
       very aggressively and expected $100m in sales
    The “Just do it” slogan of Nike was devastatingly effective


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      Reebok also signed up 400 football, baseball and soccer stars for its
       advertising and promotion
      But these efforts did not pay off:. The Shaq Attaq shoes, aimed at teens,
       bombed – the colours were wrong and the price was $130US – basketball
       shoes fell 20%
      By 1995 operating costs soared to 32.7% of sales, exceeding the industry
       average of 27%
      Reebok signed up 3,000 athletes to wear Reeboks at the 1996 Olympics in
       Atlanta; NFL teams; and Rebecca Lobo (a basketball star) which blew out the
       budget
      Other endorsements failed: Michael Chang was on a $15m contract, but he
       never made it against Sampras and Aggassi who were both Nike endorsers and
       Shaquille O’Neal became unhappy with his $3m contract and started to look
       elsewhere for bigger and better money
      The Reebok company also hit distribution snags and opened a new facility in
       Memphis, which also cost big dollars
      There were problems at the top – the turnover of top management was high,
       “How do you attract first rate talent when there’s been a history of turnover at
       the top?”
      There were also price- fixing charges laid by the Federal Trade Commission
       and in May 1995, Reebok paid out $9.5m to settle
      Reebok also lost ground in the Foot Locker market. Footlocker (a Woolworths
       company) was the biggest retailer of sports shoes. Footlocker saw its biggest
       weapon as its exclusive lines but Reebok denied exclusivity to Foot Locker
       regarding their aerobic shoes. In contrast, Nike had been working with Foot
       Locker and by 1995 had a dozen items sold only by the Footlocker chain.
       Reebok also failed to get its samples in to Footlocker on time and that virtually
       guaranteed that they would not be sold in Footlocker stores.
      Senior management, even Presidents of firms need to become involved in the
       development of relationships with major customers, such as Foot Locker

Nike
      Nike, founded by Bowerman and Night, began as the “Blue Ribbon Shoe
       Company” in 1964 and sold $8,000 mostly to high school athletic teams in its
       first year.
      In 1972 they changed the name to Nike (the Greek goddess of victory) and
       during the Olympic marathon trials Nike wearers placed 4 th through 7th ,
       compared to Adidas wearers who finished 1 st , 2nd and 3rd.
      On a Sunday morning in 1975, Bowerman, a co- founder of the company, was
       playing around with a waffle iron and some urethane rubber. He fashioned a
       new type of sole with tiny studs that made it more springy. 1976 sales soared
       to $14m, up from $8.3m the year before and from only $2m in 1972
      Careful research and development of new models ensured its continuing
       success – they employed nearly 100 people in the R&D side of the business
       who produced more than 140 high-tech models
       Nike led the market with more than a 50% share
      In 1980 Nike went public and Night became a multimillionaire worth $300m,
       Bowerman sold most of his stock earlier and was worth only $9.5 million



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      Nike missed the opportunity to gain a foothold in the aerobic dancing market
       which boomed in the 1980s and lost a lot of ground to Reebok who was there
       first with a shoe designed specifically for women
      In 1993, Nike did not look like a winner as share prices tumbled – sales were
       up only 15% and earnings just 11% - not enough for a once hot-stock
      Nike embraced the motto, “Play by the rules, but be ferocious”.
      But they were not ferocious to their customers – they pampered them
      Nike cultivated customers while Reebok was surprisingly nonchalant
      Nike was also very lucky – they chose athletes to endorse their products who
       became the dominant figures in their sport.
      The “Just do it” slogan really appealed to youth and really caught on
      Success does not guarantee continued success, as is evident from Reebok’s
       rise and fall
      The most competent executives have vision, support of their organiza tion and
       reasonable judgement




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