M.

Farhan Thaib Rianto

1606899182
SAOPM Week 11 Report

Transworld Auto Parts

Case Overview
Transworld Auto Parts (TAP), a $6.6 billion subsidiary of a U.S diversified manufacturing
company, was a Tier 1 manufacturer of original and after-market parts for automobile
producers in the US and abroad. TAP had been faced by great financial due to economic
downturn in the automotive industry. Thus, the parent company had hired Ellen Bright, a
veteran in the auto and aerospace industries, as a CEO in October 2008 to turn things around.
She embarks radical changes in the company, particularly in terms of restructuring and
redefinition of the strategy that will be important for TAP’s survival in the long run. In
December 2008, following extensive consultations and several discussions with executive
team, TAP reached a decision that it would eliminate 2 of 4 of their customer-centered
divisions; Midpriced and Truck, and focusing more on their two high-performing divisions;
luxury and economy divisions. Furthermore, TAP is now focusing on the Asian market,
especially for the economy division and in the European market for the luxury division. TAP
realizes that the competition in the Asian market would be aggressive and fierce because
automotive industry is a growing segment. In addition, the parent company of TAP has set a
target goal. This goal is by 2011, they must achieve an 8% return on capital employed
(ROCE). If they do not reach these goals and maintain a positive cash flow, TAP will be
closed. TAP is also having to deal with the unscheduled downtime and their inability to make
fast product switchovers on the manufacturing floor. To overcome these problems, Bright
believed that Balanced Scorecard (BSC) could help the TAP executive team describe the
objectives that must be accomplished for the company to achieve its strategy. The BSC also
keeps them from focusing too much on the short term. In the summer 2009, Bright reviewed
the BSC and check the progress of each division’s new strategy. It turned out that there are
some objectives that economy division did not meet, and the same goes to luxury division.
Discussion
First, we discuss about the customer-center division of TAP before they downsized to just
two division. We talked about why specifically they wanted to eliminate the mid-priced and
truck division. In the case, they mentioned that the reason that they eliminate these divisions
is because they have the lowest market share compare to luxury and economy divisions.
However, we discussed that having lowest market share does not necessarily means that they
perform poorly. It could mean that they do not contribute much to the revenue stream of
TAP. Next, we talked about the luxury and economy division strategy and value propositions.
We discussed about this based on how value is created, and their competitor’s strategy
compare to them. For economy division, value is created by producing a high-quality part at a
low cost, whereas their competitor only producing a low-cost part with disregard of the
quality of the parts. This is clearly TAP’s competitive advantage. For luxury division, value
is created by producing the most innovative, quality parts on the market, while competitors
are pursuing customer-integration strategy. Next, we discussed about the strategy map of
luxury and economic division. We talked about which strategy map is better, and what are the
best performances perspective for each division. The answer is for luxury division, financial
perspective is their best objective performance because it achieved 3 out of 4 objectives
(75%), whereas for economy division is learning and growth objective because it achieved 7
out of 7 objectives (100%). We also discussed that a good features of strategy map is lead and
lag indicators in each map. For example, for economy division, their lead indicators are their
learning and growth perspectives and the lag indicator is financial perspective. Lastly, we
discussed that luxury division achieved 41.6% of the target, while the economy division
achieved 48% of the target. We can see from this percentage that the economy division has
better performance compare to the luxury division. However, in reality, this does not
necessarily mean that economy is better than luxury. Economy might achieve higher target
due to their lower target setting. In addition, the management should also analyze why they
missed the target achievement. But firstly they have to decide what measure are they going to
take.