Xaviers Institute of Business Management Studies

ANSWER SHEETS:

Question & Answers

N. B.: 1) Attempt any Four Cases

2) All cases carries equal marks.
Case: 1
McDonald’s: Serving Fast Food around the World

Ray Kroc opened the first McDonald’s restaurant in 1955. He offered a limited menu of high-quality, moderately-priced
food served fast in spotless surroundings. McDonald’s “QSC&V” (quality, service, cleanliness, and value) was a hit. The
chain expanded into every state in the nation. By 1983 it had more than 6000 restaurants in the United States and by 1995
it had more than 18,000 restaurants in 89 countries, located in six continents. In 1995 alone, the company built 2,400
restaurants.

In 1967 McDonald’s opened its first restaurant outside the United States, in Canada. Since then, the international
growth accelerated. In 1995, the “Big Six” countries that provide about 80 percent of the international operating income
are: Canada, Japan, Germany, Australia, France, and England. In the same year, more that 7000 restaurants in 89
countries generated sales of $14 billion. Yet fast food has barely touched many cultures. The opportunities for expanding
the market are great when one realizes that 99 percent of the world population is not yet McDonald’s customers. For
example, in China, with a population of 1.2 billion people, there are only 62 McDonald’s restaurants (1995). McDonald’s
vision is to be the major player in food services around the world.

In Europe, McDonald maintains a small percentage of restaurant sales but commands a large share of the fast food
market. It took the company 14 years of planning before it opened a restaurant in Moscow in 1990. But the planning paid
off. After the opening, people were standing in line up to 2 hours for a hamburger. It has been said that McDonald’s
restaurant in Moscow attracts

More visitors – on an average 27,000 daily than Lenin’s mausoleum (about 9,000 people) which used to be the place to
see. The Beijing opening in 1982 attracted some 40,000 people to the largest (28,000 square-foot) restaurant at a location
where some 8, 00,000 pedestrians pass by every day.
 Food is prepared in accordance with local laws. For example, the menus in Arab countries comply with Islamic
food preparation laws. In 995, McDonald’s opened its first kosher restaurant in Jerusalem where it does not serve dairy
products. The taste for fast food, American style, is growing more rapidly abroad than at home. McDonald’s international
sales have been increasing by a large percentage every year. Every day, more than 33 million people eat at McDonald’s
around the world with 18 million of them in the United States.

The prices vary considerably around the world ranging from $5.20 in Switzerland to $1.05 in China for the Big
Mac that costs in the United States $2.32. The Economist magazine even devised a “Big Mac Index” to estimate whether
a currency is over or undervalued. Thus, the $1.05 Chinese Mac translates into an implied Purchasing Power Parity of
$3.88. The inference is that the Chinese currency is undervalued while the Swiss Franc is overvalued. Here are other
prices for the $2.32 U.S. Big Mac. Britain, $2.80, Denmark $4, 92, France $3.23, Japan $4.65, and Russia $1.62.

Its traditional menu has been surprisingly successful. People with diverse dining habits have adopted burgers and
fries whole heartedly. Before McDonald’s introduced the Japanese to French fries, potatoes were used in Japan only to
make starch. The Germans thought hamburgers were people from the city of Hamburg. Now, McDonald’s also serves
chicken, sausage, and salads. One of the items, a very different product, is pizza. In Norway, McDonald’s serves grilled
salmon sandwich, in the Philippines pasta in a sauce with frankfurter bits, and in Uruguay the hamburger is served with a
poached egg. Any new venture is risky and can be either a very profitable addition or a costly experiment.

Despite the global operation, McDonald’s stays in close contact with its customers who want good taste, fast and
friendly service, clean surroundings, and quality. To attain quality, the so called Quality Assurance Centers (QACs), are
located in the U.S., Europe, and Asia. In addition, training plays an important part in serving the customers. Besides day-
to-day coaching, Hamburger Universities in the U.S., Germany, England, Japan, and Australia, teach the skills in 22
languages with the aim of providing 100 percent customer satisfaction. It is interesting that McDonald’s was one of the
first restaurants in Europe to welcome families with children. Not only are children welcomed, but also in many
restaurants they are also entertained with crayons and paper , a playland, and the clown Ronald McDonald’s , who can
speak twenty languages.

With the aging population, McDonald’s takes aim at the adult market. With heavy advertising (it has been said
that McDonald’s will spend $200 million to promote the new burger) the company introduced Arch Deluxe on a potato –
flower bun with lettuce, onions, ketchup, tomato slices, American cheese, grainy mustard and mayo sauce. Although
McDonald’s considers the over – 50 adult burger a great success, a survey conducted five weeks after its introduction
showed mixed results.

McDonald’s golden arches promise the same basic menu and QSC&V in every restaurant. Its products, handling
and cooking procedures and kitchen layouts are standardized and strictly controlled. McDonald’s revoked the first French
franchises because the franchise failed to meet its standards for fast service and cleanliness, even though their restaurants
were highly profitable. This may have delayed its expansion in france.

The restaurants are run by local manager and crews. Owners and managers attend the Hamburger University near
Chicago, or in other places around the world, to learn how to operate a McDonald’s restaurant and maintain OSC&V.
The main campus library and modern electronic classrooms (which include simultaneous translation systems) are the envy
of many universities. When McDonald’s opened in Moscow, a one – page advertisement resulted in 30,000 inquiries
about the jobs; 4000 people were interviewed, and some 300 were hired. The pay is about 50 percent higher than the
average Soviet salary.

McDonald’s ensures consistent precuts by controlling every stage of the distribution. Regional distribution
centers purchase precuts and distribute them to individual restaurants. The centers will buy from local suppliers if the
suppliers can meet detailed specifications. McDonald’s has had to make some concessions to available products. For
example, it is difficult to introduce the Idaho potato in Europe.

McDonald’s uses essentially the same competitive strategy in every country: Be first in a market, and establish its
brand as rapidly as possible by advertising very heavily. New restaurants are opened with a bang. So many people
attended the opening of one Tokyo restaurants that the police closed the street to vehicles. The strategy has helped
McDonald’s develop a strong market share in the fast food market, even though its U.S. competitors and new local
competitors quickly enter the market.

The advertising campaigns are based on local themes and reflect the different environments. In Japan, where
burgers are a snack, McDonald’s competes against confectioneries and new “fast sushi” restaurants. Many of the
charitable causes McDonald’s supports abroad have been recommended by the local restaurants.

The business structures take a variety of forms. Sixty-six percent of the restaurants are franchises. The
development licenses are similar to franchising, but they do not require McDonald’s investments. Joint ventures are used
when the understanding of local environment is critically important. The McDonald’s Corporation operates about 21
percent of the restaurants. McDonald’s has been willing to relinquish he most control to its Far Eastern operations, where
many restaurants are joint ventures with local entrepreneurs, who own 50 percent or more of the restaurant.

European and South American restaurants are generally company-operated or franchised (although there are many
affiliates – joint ventures – in France). Like the U.S. franchises, restaurants abroad are allowed to experiment with their

Menus. In Japan, hamburgers are smaller because they are considered a snack. The Quarter Pounder didn”t makes much
sense to people on a metric system, so it is called a Double Burger. Some German restaurants serve beer; some French
restaurants serve wine. Some Far Eastern McDonald’s restaurants offer oriental noodles. In Canada, the menu includes
cheese, vegetables, pepperoni, and deluxe pizza; but these new items must not disrupt existing operations.

Despite its success, McDonald’s faces tough competitors such as Burger King, Wendy’s, Kentucky Fried
Chicken, and now also Pizza Hut with its pizza. Moreover, fast food in reheatable containers is now also sold in
supermarkets, delicatessens (a store selling foods already prepared or requiring little preparation for serving) and
convenience stores, and even gas stations. McDonald’s has done very well, with a great percentage of profits coming
now from international operations. For example, McDonald’s dominates the Japanese market with 1,860 outlets (halt the
Japanese market) in 1996 compared to only 43 Burger King Restaurants. However, the British food conglomerate Grand
Metropolitan PLC that owns Burger King has an aggressive strategy for Asia. Although McDonald’s is in a very
favourable competitive position at this time, can this success continue?

Question & Answers

Q.No.1. What opportunities and threats did McDonald’s face? How did it handle them?
What alternatives could it have chosen?
Ans:
Opportunities:
1) "Going green" - energy management, improving packaging efficiency, environmentally friendly refrigerants, and
partnering with Greenpeace for rainforest protection.
2) New store looks/styles - McCafe coffee shop, and "forever young" redesign Charity - The Ronald McDonald House
provides a cheap or free place to stay for parents of sick children. Over 250 worldwide in 48 countries.

3) McDonald's has maintained an extensive advertising campaign for decades. For popularity they use media (television,
radio, and newspaper), the company makes significant use of billboards and signage, sponsors sporting events ranging
from Little League to the Olympic Games, and makes coolers of orange drink with their logo available for local events of
all kinds. Television has always played a central role in the company's advertising strategy. They always advertise
McDonalds much different way to their customers. Until now, McDonald's has used 23 different slogans in United States
for advertising, and few others slogans for select countries and regions.

4) Recently McDonald's is actively trying to reduce their negative impact on the environment by altering their company
policies. Their policy now an outline is not only the individual restaurants' behaviors, but also the ways in which they go
about using their resources and acquiring them-. Since the 1990's, McDonald's restaurants have been encouraged to
participate in the environmentally friendly movement by getting involved in community clean up days to cut down on
the amount of litter around their stores. They have made an effort, assisted by Environmental Defense, to utilize
recycling both in packaging their products and in what they use day to day which has allowed them to cut down on their
waste significantly. McDonald's continues to be environmentally conscious in their business and they are currently
testing a restaurant that will potentially give off less harmful pollutants by using alternatives to harmful refrigerants.

5) They have the ability to add healthier lines of food. They have already gotten rid of super sizing and I think they have
made their fries healthier currently. There is another personify is the Golden Arches are now more widely recognized
than the Christian cross. McDonald's operates more playgrounds - designed to attract children (and their parents) to its
restaurants - than any other private. Many competitors for same costumer - Subway – Burger entity in the US.

Threats Criticism - contribute to King - KFC - Taco Bell obesity, and other health problems Leaflet 'A Threat' to
McDonalds, MCDONALD'S, the biggest fast-food chain in the world, High Court to stop two London environmentalists
from distributing a leaflet which links the company's meals to heart disease and cancer and accuses it of despoiling the
environment and exploiting the Third World.
Bird flu no threat to McDonald's chicken: Advertisement strategy In a bid to save its plummeting sales of chicken
products in McDonalds, they have planned an exclusive advertisement campaign. The campaign would ensure that the
customers get the message that chicken here is safe. This has been planned by McDonald's Corp., of Oakbrook, Ill. This
strategy is a risk and pressure tactic which would ensure that is a epidemic and bird flu scare spread they can influence
the customers. They have already prepared ads and would air them, as soon as needed. It is now a fact backed by
scientific research that humans cannot get bird flu by eating chicken that has been cooked and prepared properly. This
kills the virus.

McDonald's faces up to European fears over food and job quality LONDON - McDonald's is set to admit that it has not
done enough to reassure the European market on issues about the nutritional value of its food and the quality of jobs it
provides, in a corporate responsibility report to be published next week. According to a report in the Financial Times, the
report will admit that McDonald's has learned that "we could do better in our understanding of wider social trends and
expectations". It says that the report will quote negative and positive comments given to it in a year of interviews,
including accusations that McDonald's "does not value its employees" and that "working at McDonald's doesn't look like
much fun". It rejects the claims, and has been working to dispel the McJob tag with which it is saddled. Burger giant
faces court threat over bad language idea. Fast-food giant McDonald's could be in trouble with race watchdogs for
asking its staff to speak English. An outlet in Manchester put up a sign ordering employees to use English at all times in
the store – including in the staffroom. But experts now believe the burger giant could have infringed workers' human
rights and European employment law.

How did McDonald handle them ?

McDonalds handle these threats by By delivering superior value tothese possible steps. For better By decreasing
health problem. Customers then competitors. performance in Europe Mcdonald has to do a lot of work by providing
the taste and dishes which have high demand in Mcdonald

Mcdonald should increase advertisement in Europe. Europen market should distribute free sample in different offices
and McDonald have to provide the job that person whichcolleges.

Mcdonald should make can attract more customers through his strategies planning to avoid from bird flu and other
diseases in Mcdonald can done better performance then his future.

Mcdonald competitors by providing dishes which are a part of that culture. Should launch some new dishes according to
condition. Mcdonald should provide traditional dishes .

What alternative could it have chosen?

 Mcdonald can use following alternative to increase his value:

 Mcdonald should stop his product where it's not doing well and take corrective action and check his quality.
  Mcdonald should open new restaurant in that area where fast food has important part in the culture of that
area.
 Mcdonald has to choose that management which can easily understand the demand of all customer.
 Mcdonald should decrease its prices in that country where per capita is very low.
 Mcdonalds should make his manuals which include traditional dishes of that area.
 Mcdonald should it think at the level of middle customer rather then the high level customer.
 Mcdonald should provide bonus to his employees for better performance.

Q.No. 2. Before McDonald’s entered the European market, few people believed that fast
food could be successful in Europe. Why do you think McDonald’s has succeeded? What
strategies did it follow? How did these differ from its strategies in Asia?
Ans:
McDonald has got very strong position in Europe because the people of Europe like mostly fast food and
McDonald providing fast food in Europe. The McDonald menu mostly includes traditional dishes of Europe.
We know that per capita of Europe is high as compare to Asia, so prices are not problem in Europe.

McDonald’s succeeded because in Europe there are people involved in many activities that require a lot of
time, so they must eat something on the run so that they can go back to their jobs, where they can 'produce'
money that will be spent at a fast food. It’s a vicious circle. we all live in the era of speed, and we all are too
fast and too furious. so, logically, a fast food like McDonald’s was in need, like it or not.
The net profit of McDonald in Europe is as high as compare to Asia. We know that per capita of Asia is low as
compare to Europe is very low, so prices are a big problem in Asia. There is no any major different in
McDonald strategy in Europe and Asia. In Asia McDonald menu is according to Asian culture and traditional
dishes and in Europe it’s according to their culture. McDonald’s has pursued two strategies since 2003. To
keep up with rapidly changing consumer preferences, demographics and spending patterns, McDonald's has
introduced new items (Premium Chicken sandwiches and the Angus Beef Burger) and campaigns to create
more healthy foods (Premium Salads).
The strategy reflects the philosophy that novelty, as opposed to loyalty to traditional products, is the key
determinant of sales in the fast food industry. McDonald’s has also focused on increasing sales at existing
restaurants instead of opening new ones. To do so, McDonald's has remodeled many restaurants, kept stores
open longer and increased menu options. Nevertheless, new McDonald’s restaurants are still opening around
the world at a rapid rate .

McDonald’s successes & Strategies :

I think that they have succeeded because they provide good food at a good price, and they give people what
they expect when they go to a McDonald's.
Their food is nice and cheap....so many people would like to go there for their meals and when you enter the
store, you can immediately smell the fragrance of the food and you will be attracted to eat the food.
McDonald's is actively trying to reduce their negative impact on the environment by altering their company
policies. Their policy now an outline is not only the individual restaurants' behaviors, but also the ways in
which they go about using their resources and acquiring them.
Since the 1990's, McDonald's restaurants have been encouraged to participate in the environmentally friendly
movement by getting involved in community clean up days to cut down on the amount of litter around their
stores. They have made an effort, assisted by Environmental Defense, to utilize recycling both in packaging
their products and in what they use day to day which has allowed them to cut down on their waste
significantly.
McDonald's continues to be environmentally conscious in their business and they are currently testing a
restaurant that will potentially give off less harmful pollutants by using alternatives to harmful refrigerants.

1. McDonald's brand mission is to "be our customers' favorite place and way to eat." Our worldwide
operations have been aligned around a global strategy called the Plan to Win centering on the five basics of an
exceptional customer experience – People, Products, Place, Price and Promotion.

2. We are committed to improving our operations and enhancing our customers' experience. We are a
learning organization that aims to anticipate and respond to changing customer, employee and system needs
through constant evolution and innovation.

3. We work to provide sustained profitable growth for our shareholders. This requires a continuing focus on
our customers and the health of our system.

4. We work to provide sustained profitable growth for our shareholders. This requires a continuing focus on
our customers and the health of our system.

5. We spend more money on research and development to create new products and services and increase the
efficiency of operation.

Q.No,.3. What is McDonald’s basic philosophy? How does it enforce this philosophy and
adapt to deferent environments?
Ans:
McDonald's founder Ray Kroc built the company on the principle of giving back to the communities in which
we do business. That same basic philosophy still holds true at McDonald’s today.

McDonald’s golden arches promise the same basic menu and QSC&V (quality, service, cleanliness and value)
in every restaurant. Its products, handling and cooking procedures and kitchen layouts are standardized and
strictly controlled. The restaurants are run by local mangers and crews. Owner and managers attend the
Hamburger University near Chicago, or in other places around the world, to learn how to operate a
McDonald’s restaurant and maintain QSC&V. The main campus library and modern electronic classrooms
(which include simultaneous translation systems) are the envy of many universities McDonald’s ensures
consistent products by controlling every stage of the distribution. Regional distribution centers purchase
products and distribute them to individual restaurants. The centers will buy from local suppliers if the
suppliers can meet detailed specifications. McDonald’s uses essentially the same competitive strategy in every
country.

The basic philosophy McDonalds is to develop a collaborative approach with our suppliers. We are committed
to sharing best practice with all our suppliers including the beef farmers who benefit from this commitment
because it helps improve quality and increase value.' David Thomas, Senior Agricultural Assurance Manager,
McDonald's

This philosophy of McDonald is so important because if the relationship with the supplier is not good they
can't provide food to customer in time . We can say that the supplier of raw material is the heart of any
business, and McDonald basic philosophy include the good relation with the supplier. Mcdonald have to apply
this philosophy in any environment without any discrimination for better performance and provide fresh food
to customer.

Q.No. 4. Should McDonald’s expand its menu? If you say no, then why not? If you say yes,
what kinds of precuts should it add?
Ans:
The answer is yes, and in fact Mcdonalds is expanding it's menu every year.
If you look back ten years ago and look at today’s menu you will notice the number of items has almost
doubled. Within this year, Mcdonalds has already released Frappes and Mac Snack wraps etc.
They add new food products. Like now they are selling the southern style chicken sandwich.

They also advertise it on the TV, radio, billboards and magizines. They give out coupons so that people see the
new item. If it sells well, then it becomes a new item that lasts. If it doesn't, then the owner can decide not to
sell it, unless the corporate says that they have to. That's why different McDonalds have different things.

The food sold by McDonald's is regarded by many to be very bad for your health if eaten too often - if this is the case
perhaps it should make its food more healthy.

Q.No. 5. Why is McDonald’s successful in many countries around the world?

Ans :
The amount of current Franchise for Sale options on the market is increasing every day, there are numerous
kinds of Franchise options but when asking the general public about franchising the first point they say is food.
The amount of food franchises available is ever rising and you can hardly drive a small amount of miles
without spotting a well-known brand restaurant. This is due to the success of these franchises and the
business model that it conveys.
One of the most lucrative food franchises is McDonalds, it is the largest and first international food franchise.
The McDonalds Corporation is the worlds largest fast food franchise which means that it is the most significant
in terms of business model and Franchise Opportunity.
The McDonalds brand is built around convenience food such as hamburgers, chips, chicken and soft drinks and
recently salads, fruit and pasta. The corporation was created in 1940 by brothers Dick and Mac McDonald,
when they opened their first restaurant. It was their unique idea of fast food in 1948 that established what we
now take as a fast food.

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Case No. : 2

Developing Verifiable Goals

The division manager had recently heard a lecture on management by objectives. His enthusiasm, kindled at that time,
tended to grow the more the thought about it. He finally decided to introduce the concept and see what headway he
could make at his next staff meeting.

He recounted the theoretical developments in this technique, cited the advantages to the division of its
application, and asked his subordinates to think about adopting it.

It was not as easy as everyone had thought. At the next meeting, several questions were raised. “Do you have
division goals assigned by the president to you for next year ?” the finance manager wanted to know.

“No, I do not,” the division manager replied. “I have been waiting for the president’s office to tell me what is
expected, but they act as if they will do nothing about the matter.”

“What is the division to do, then?” the manager of production asked, rather hoping that no action would be
indicted.

“I intend to list my expectations for the division,” the division manager said. “There is not much mystery about
them. I expect $30 million in sales; a profit on sales before taxes of 8 percent; a return on investment of 15 percent; an
ongoing program in effect by June 30, with specific characteristics I will list later, to develop our own future managers;
the completion of development work on our XZ model by the end of the year; and stabilization of employee turnover at
5 percent.’’

The staff was stunned that their superior had thought through to these verifiable objectives and stated them
with such clarity and assurance. They were also surprised about his sincerity in wanting to achieve them.
 During the next month I want each of you to translate these objectives into verifiable goals for your own
functions. Naturally they will be different for finance, marketing, production, engineering, and administration. However
you state them, I will expect them to add up to the realization of the division goals.’’

Question & Answers

Q.No. 1.Can a division manager develop verifiable goals, or objectives, when the president
has not assigned them to him or her? How? What kind of information or help do you believe
is important for the division manager to have from headquarters?
Ans:
Yes, I think a division manager can develop verifiable goals, or objective, when they have not been assigned to
him or her by the president. It seems that the division manager has exercised management by objectives
(MBO) which has been widely used for performance appraisal and employee motivation, but it is really a
system of managing. Among its Benefits, MBO results in better managing, often forces managers to clarify the
structure of their organization, encourages people to commit themselves to their goals, and helps develop
effective control of kinds of information or help.
For the division manager to develop verifiable goals, or objective help and information is required from the
president.

Firstly, the division manager needs to know the corporate goals and how their own activities fit them.
Secondly, manager also needs planning premises and knowledge of major company policies.

Thirdly, top manager should not only give lip service to MBO; they must be involved in the process.

Fourthly, the organizational climate must be conductive to MBO philosophy. Objectives should be
independent therefore, coordination and a team approach must be used where appropriate. Consequently,
MBO must be flexible enough to adapt unforeseen changes in the environment.

Moreover, MBO must be understood by the management.

Q2. Was the division manager setting goals in the best way? What would you have done?
ANS .

Yes, the division manager set the goals in the best way.
He managed to set a sales target, return on investment, arrange a program for the development of future
managers, date to complete the development work on XY model by the end of the year and stabilization of
employee’s turnover at 5 percent.
Managers choose, organize, and manage, all available resources to accomplish the goals and objectives of the
organization. There resources would include the following. Material resources. Human resources, Financial
resources , Informational resources.

Setting goals and managing the sales force :

The success of a business centers on the successful sales of products and services, nearly all organizations with
sales forces use sales goals.
A sales goal or quota is a performance standard by which sales people/sales representatives and sales
managers are measured. The primary purpose of having sales goals or quotas, is to synchronize the directin
and efforts of the sales force with the plans developed by a firms top managers.
Keeping the efforts of the sales force with the plans developed by a firms marketing strategy help ensure that
the firms sales resources are being spent wisely. It allows for comparisons to be made between different sales
territories and sales personnel.
The results of these comparisons can be then used to determine where the company’s biggest opportunities
and challenges may lie.

Different type of factors can be used to set sales goals:

Input factors are the efforts a sales person is expected to make to develop relationships with customers, meet
with them, and make presentations and proposes to them.
Output factors are the results of what a firm expects a reps sales effort to yield. They include metircs such as
the amount and profitability if sales.
Many organizations utilize and combination of input and ouput goals to ensure that their sales representatives
are engaging in customer service activites as well as meeting their ouput goals.
Expense goals are used to motivate sales reps to keep their selling costs to a reasonable amount. Finding the
correct combination of goals and not overwhelming sales reps with too many types of goals can be a
challenging task for sales managers.
The majority of organizations tie the performance of their sales people to the compensation they receive,
which is frequently based on the percentage of their goals they achieve. To help obtain their commitment to
meeting their goals, sales reps are often encouraged to provide their sales managers.

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 Case No. : 5
Managing the Hewlett
Packard Way
William R. Hewlett and David Packard are two organizational leaders who demonstrated a unique managerial style. They
began their operation in a one-car garage in 1939 with $538 and eventually built a very successful company that now
produces more than 10,000 products, such as computers, peripheral equipment, test and measuring instruments, and
handheld calculators. Perhaps even better known than its products is the distinct managerial style preached and practiced
at Hewlett-Packard (HP). It is known as the HP Way. ``What is the HP Way? I feel that in general terms it is the policies
and actions that flow from the belief that men and women want to do a good job, a creative job, and that if they are
provided the proper environment they will do so.’ Bill Hewlett, HP Co-Founder

The values of the founders – who withdrew from active management in 1978 – still permeate the organization.
The HP Way emphasizes honesty, a strong belief in the value of people, and customer satisfaction. The managerial style
also emphasizes an open-door policy, which promotes team effort. Informality in personal relationships is illustrated by
the use of first names. Management by objectives is supplemented by what is known as managing by wandering around.
By strolling through the organization, top managers keep in touch with what is really going on in the company.

This informal organizational climate does not mean that the organization structure has not changed. Indeed, the
organizational changes in the 1980s in response to environmental changes were quite painful. However, these changes
resulted in extraordinary company growth during the 1980s.

Question & Answers

Q.No.1. Is the Hewlett – Packard way of managing creating a climate in which employees are
motivated to contribute to the aims of the organization? What is unique about the HP Way?
Ans:

1. Introduction:
In 1956, Bill Hewlett, Dave Packard, and a handful of other HP executives gathered at the Mission Inn in
Sonoma, California, to create a set of values and principles to guide their company. The six objectives that this
small group subsequently created not only helped shape “a new kind of company,” but ultimately became the
foundation for what came to be known as “the HP way”.
These six objectives, which later became seven, are:

1. Recognize that profit is the best measure of a company’s contribution to society and the ultimate source of
corporate strength.
2. Continually improve the value of the products and services offered to customers.
3. Seek new opportunities for growth but focus efforts on fields in which the company can make a
contribution.4.Provide employment opportunities that include the chance to share in the company’s success.
5. Maintain an organizational environment that fosters individual motivation, initiative and creativity.
6. Demonstrate good citizenship by making contributions to the community.7.Emphasize growth as a
requirement for survival.
a) Competitive Advantage
HP leaders have "an advantage that enables them to learn and adjust as few others can. The depth, breadth,
and vitality that come alive daily through the firm's values – the HP Way – are asset from which most of the
Silicon Valley continues to learn. HP general managers regularly discuss and assess the vitality of the HP Way,
a process, that inevitably results in corrective actions to ensure its continued viability."

b) HP Values
Originally put in writing in 1989 by David Packard, HP values are the centerpiece of the Hewlett-Packard Way.
"Hewlett-Packard's stated values are not uniquely different from most major companies. What makes the HP
Way unique, though, is the seriousness with which values are treated as a management tool. They are not
spread by sloganeering, but serve as criteria for daily decision-making and advancement. Brought to life as
well as Hewlett-Packard does the HP Way, values based management lifts everyone above trivial concerns to
focus on those that are truly important."
The two founders trusted in the "individual's own motivation to work") and treated their employees as family
members; hence the custom to call each other by the first name - even the two chiefs were only known as Bill
and Dave.

The HP workers were participated in the company with stock options and were even paid additional premiums
when HP was successful - today known as profit sharing. These measures served to identify the employees
with their work and to encourage them.

Moreover, the HP way included extensive employment benefits such as scholarships for the employee's
children.

The HP objectives are still valid today. They cover as follows: "Profit, Customers, Fields of Interest, Growth,
Our People, Management, and Citizenship.") And these objectives are to be achieved through teamwork.

c) Inspiring Culture: few Elements

Integrating Critical Opposites:

To create an organization that could sustain its competitive advantage regardless of marketplace whims and
what their competitors were building, HP founders based their corporate culture on the integration and
reinforcement of critical opposites. This became known as the Hewlett-Packard Way. HP has achieved "what
appears to be the greatest dichotomy: creating an environment that celebrates individualism, but at the same
time one that is also wholly supportive of teamwork. Although HP people are taught to engage in cross-
functional teams, they are also rated on the performance of decentralized business units and personal
achievement."
Supporting Teamwork
"Interesting, when the Japanese look at HP, they say this is a Japanese company. This stems from the Japanese
focus on teamwork and on forging a highly developed collaborative workplace. In an Asian environment, the
group supercedes the individual."
HP environment is not a near clone of the Japanese-style teamwork, however. The company managed to avoid
the traditional weaknesses of both American and Japanese companies that have allowed either individualism
or consensus building to be taken to the extreme. HP excelled in managing dualities – specifically in creating a
delicate balance between individual creativity and teamwork.

Developing Cross-functional Individuals:

Most companies tend to recruit, train and promote people within functional corridors. But Hewlett-Packard
(HP) breaks the walls, creating a carrier network that begins with the recruitment of diverse people in terms of
their skills and personality and then promotes horizontally, as well as vertically throughout the company.
"Typically, HP employees move through four to six functional areas in the course of their carriers. This creates
broad knowledge of the company and fosters the kind of teamwork other companies cover".

d) Smart Business Architect :

When it comes time to promote, managers don't look who is next down the carrier line, they look for the best
people. Neither employees should follow a pre-defined path to a particular post, nor need they to get a bigger
title to be given new responsibility.

HP unique ways and Values:

HP approach each situation with the belief that people want to do a good job and will do so, given the proper
tools and support. They attract highly capable, diverse, and innovative people and recognize their efforts and
contribution to the company.

HP expect HP products and services to be of the highest quality and to provide lasting value. To achieve this,
all HP people – but especially managers – must be leaders who generate enthusiasm and respond with extra
effort to meet customer needs.

HP expect HP people to be open and honest in their dealings, so as to earn the trust and loyalty of others.
People at every level are expected to adhere to the highest standards of business ethics and must understand
that anything less is totally unaccepted.
HP recognize that it is only through effective cooperation within and among the organizations that HP can
achieve the goals.
HP create an inclusive work environment that supports the diversity of our people and stimulates innovation.
We allow people flexibility in working towards goals in ways that they help determine are best for the
organization.

Conclusion:
Despite all ups and downs the HP way has proved to be the most effective manner of management. This has
set an example for all other companies. HP management does not consider the organization as their job place.
They think of it as their home and the employees working there as their family members. Therefore each and
every person working for HP- regardless of the geographic region they are in, they are all treated equally and
with equal respect and importance

Q.No.2. Would the HP managerial style work in any organization? Why, or why not? What
are the conditions for such a style to work?
Ans :

1.Introduction:

HP posted latest revenue in 2010 was $126.3 Billion in 2009 net revenue was$115 Billion with approximately
40 Billion coming from services. HP started its journey from one car garage in 1939 with $ 538 and eventually
built a very successful company with high level resource let it be human or business. These72 years they have
grown from level zero to the latest technological level. HP way was one of the most important and basic
reason why HP is called to be the most successful and booming industry of current time. They are currently
working with 3, 24,600 employees and such high skilled and motivated workers are the reasons behind HP’s
success.

2. The Large & Small enterprise:

The reason why HP could follow such managerial skill is because of their financial ability. It takes expertise to
understand own employees & high technology to build the knowledge of these employees. All these cost
money which HP could pay off. HP could ensure job security at the time when the economy was facing high
recession. This is not possible by all companies but due to this the employees have grown faith and trust
towards the organization.

The small and moderate companies cannot afford to employ such large number of employees. IBM, DELL, and
APPLE such company can financially afford managerial style similar to HP way but it also depends on their
working environment. It is not possible by all companies to employ large number of employees, give them job
security, flexibility and job enrichment. All these need large finance and high level expertise who will
understand the needs and wants of the employees. Yet among these ways that HP follows, there are once that
the small organizations can follow. Such steps do not involve money.

3. Conditions for HP way to work:

HP management mainly follows three famous theory of motivation. It is a mixture of MCGRAGOR’S Theory Y,
Herzberg Hygiene Theory and Maslow’s Theory of motivation. The contrast of the theories to prove the
validity of HP way and conditions for such style to work are :

•The founders of HP way always think friendly job environment is essential for working and McGregor’s theory
Y also considered friendly environment isomer helpful than external control and the threat of punishment.
The theory also implies that physical and mental effort in work should be as friendly as play and thus HP way
always avoid formal relations between the manager’s and subordinates and try to maintain a friendly relation
and create a Herzberg maintenance factor. This is affordable by both large and small company. Any
organization can follow such managerial style as it is effective and free of cost by monetary means.

• HP way always promotes the team effort and always expect all employees participation and that’s why they
provide their employees proper scopes to proof their qualities that’s how HP way fulfill the Maslow’s esteem
need as well as the Herzberg’s motivation factor. Like all companies, small and midsized businesses need to
update and upgrade IT equipment as new generations offering greater capabilities and efficiencies are
introduced, and as the company itself grows or evolves. With limited resources, just staying in tune with
what’s available and appropriate for the business can be daunting. Therefore only large companies with
updated technology can encourage the innovation of the employees. The small once can only encourage team
work with limited resources.

• Employees of HP rewarded with profit sharing, above market wages, generous work life balance and a
culture where their contribution not only appreciated but also expected and McGregor’s theory Y also talks
about the reward for the achievement. The large companies, as large as HP, which has growth every year and
earn a sufficient amount of profit can follow such managerial style.

• Maslaws Heirchy of needs always give importance to the job security and safety and HP way also try to
provide job security and safety for their employees.HP has provided job security when the economy was
below average and people were laid off. Such ability was due to strong financial background of the company,
therefore it is only possible for companies with strong financial background.

4. Conclusion:

More or less, each and every step of HP way helps others realize and teaches how to manage the organization.
It is an exemplary managerial style for all organizations let it be of IT industry or any other cross industry. It
has shown the world that to be successful, maintaining a proper working environment is as important as
making profit. The growth of a company can only be expected whenthe people working for it is satisfied.

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 Case No.: 6

Quality as the Key Success Factor

In Winning the Global Car War

Massachusetts institute of Technology (MIT) conducted an extensive study of the global car industry that compared
operations at General Motors, Toyota, and the joint venture between GM and Toyota, the New United Motor
Manufacturing Inc. (NUMMI) plaint in Fremont, California. The result of the study should raise some very disturbing
questions about the quality and productivity of American operations, namely:

 Why did GM’s Framingham plant require 31 hours to assemble a car when the Toyota plant only required 16
hours- or roughly half the time?
 Why did the GM plant average 135 defects per car when Toyota had only 45 defects – or about one-third the
numbers?
 Why did GM require almost twice as much assembly space as the Toyota facility?
 Why did GM require to a two-week parts inventory when Toyota only needed a two-hour supply of parts for
its assembly line? As one might suspect, the cost of maintaining a large parts inventory inflates product costs.
Obviously GM did not fare well in the direct comparison to Toyota, but there are also signs of encouragement in
the MIT study. Although American auto makers had fallen behind their foreign rivals, they have taken active steps to
improve product quality and respond to customer wants. These companies have not been defeated; rather they have been
revitalized by the competition.

GM joined forces with Toyota to create the NUMMI plant in order to improve the quality and efficiency of its
manufacturing operations. The old GM plant in Fremont, California, was one of the car maker’s worst performing
facilities before the NUMMI operation was initiated. As a result of the joint venture, assembly time has been greatly
reduced and quality, measured in terms of total number of defects per car, has equaled the performance of Toyota in
Japan.

Although assembly space is still relatively high by Japanese standards, NUMMI’s inventories have been reduced from
two weeks to just two days. In short, the solution to many of GM’s production problems could be traced to a need of
eliminating waste, focusing on value-added process, and enforcing more stringent quality controls.

In some ways, the European car industry is even in a less competitive position than U.S. companies. The quality,
measured by assembly defects for 100 vehicles, is worse in Europe. European car manufacturers had 97 defects per 100
cars, compared to 82.3 by American firms operating in the United States. Japanese companies operating in North America
had only 65 such defects and Japanese firms in Japan had only 60?
 In productivity, European car firms also did poorly, requiring 36.3 hours to assemble a car compared with 25.1
hours of U.S. companies in North America, 21.2 hours of Japanese car makers in North America and only 16.8 hours of
Japanese firms operating in Japan. Clearly, U.S. and especially European firms need much improvement in productivity
and quality to be competitive in the global market.

Question & Answers

1. In the NUMMI joint venture, what did Toyota gain? What were the benefits for General
Motors?
Ans:

As per case study :

In 1984, New United Motors Manufacturing, Inc. (NUMMI) was formed as an independent California
corporation located in Fremont. Competitors Toyota and General Motors received permission from the
Federal Trade Commission to operate it as a joint venture for a period of twelve years.
Both General Motors and Toyota have benefited from what they have learned in the joint venture, and both
have obtained high-quality cars for sale in the U.S. and, in Toyota’s case Japan.
Toyota’s primary objective in beginning manufacturing in the United States was to protect and increase its
market share. It has a long-range goal of surpassing General Motors as the world’s leading manufacturer of
automobiles.
A U.S. plant would be Toyota’s first overseas manufacturing facility, and the company had many concerns.
A joint venture was viewed as an approach that would lower the risk while providing help in overcoming
difficult potential problems. Toyota stated that it wanted to ;
(1) gain experience with American unionized labor,
(2) gain experience with American suppliers, and
(3) help diffuse the trade issue between the United States and Japan.
Toyata also learned and gain to,

1. Access to benefits
2. Overcome regulatory barriers (Dubai and china for example)
3. Strengthen long term relationship or collaborate on short term projects
4. Growth
5. Productivity
6. Lower factor cost
7. Profit
8. Access to new market and distribution
9. Increased capacity
10. Sharing of risks
11. Putting safety and quality first, assigning the responsibility for safety and quality to each
worker, and giving them the authority to assure it
11. Overcome work efficiency.

After joint venture Toyata’s production become increased in America.

Toyota’s initial attempt to export compact cars in 1958 to the US had failed because of poor quality and
styling, after redesigning their automobiles and improving quality the made a second and successful entry into
the American market.
After joint venture, For Toyota, this was its first major manufacturing investment in the United States.
Toyota learned how to adapt its famed Toyota Production System to work with US suppliers, US government
regulations, and, most importantly, the UAW (United Auto Workers).
Toyota invested in its first wholly-owned plant in the USA; this new plant in Kentucky eventually became
Toyota’s largest outside of Japan.
Japanese success was due to management policies and production system.
Japan plant used non-union labors compare to American with strong unions and entrenched management.
With regard to the overall results to be achieved from NUMMI, Toyota placed gaining of market share above
profits.

About GM (General Motors) :

Benefits for GM :
General Motors, for its part, also sought to learn from the venture. But its task was more challenging. GM
indeed sought to glean tips from Toyota’s magic.
General Motors had two major objectives in entering the joint venture:
 “to gain first-hand experience with the extremely efficient and cost-effective Toyota production
system” and
 to obtain high quality automobiles
GM learned the Toyota Production System and how to make a profit on a small vehicle .

GM joint venture as an opportunity to learn about lean manufacturing base in North America and chance to
implement its American production system in American labor environment.

But the way the joint venture was run kept this learning to a minimum. GM placed a dozen or so managers at
the plant; Toyota was in charge of operating the plant and filling other managerial positions. The learning-by-
doing of Toyota managers turned out to be the more useful way to learn.
GM also faced an uphill battle in incorporating what it did learn from Toyota. Yes, GM saw that Toyota
organized the factory floor and relations with suppliers differently. But transferring this to GM’s legacy plants
in Detroit proved difficult. The new Saturn line was launched to try to capture this learning, but even a new
nameplate could not change old corporate habits.
The NUMMI plant quickly became 40 percent more productive than the average American automobile
manufacturing facility. (AJBS, 1988) Researchers at the MIT- Massachusetts Institute of Technology estimated
in 1988 that productivity at the NUMMI plant exceeded that of all American-owned U.S. automobile plants,
except for Ford’s Taurus facility with which it was approximately equal.
Labor relations improved dramatically. At the end of the time when GM was running the plant there was a
backlog of over 1,000 grievances and 60 dispute firings. With absenteeism at over 20 percent, there were
many days on which the plant could not start on time because not enough workers had showed up.

In the first two years under NUMMI management, attendance was at 98 percent with most of the absences
occurring for excusable reasons. Only one grievance was not solved informally. Absentee rates are still low and
labor relations still good in 2004.
The cars produced have won a number of quality awards.
Experience with NUMMI was also applied by GM in an innovative small-car project named Saturn, originally
conceived by GM CEO Roger Smith in 1983. It was to “make superb little cars to beat the Japanese at their
own game.
In order to free the project from the bureaucratic constraints of GM, allow the development of cooperative
labor management relations, and to provide it with its own identity, it was set up as a separate company.

Even if General Motors were able to gain equality in productivity and quality with Toyota, itwould still likely
not be as profitable because of its relatively high costs of pensions and health
benefits.

Q.No.2. As a consultant, what strategies would you recommend for European carmakers to
improve their competitive position in the global car industry?
Ans :
Modern Global Automobile Industry :

Today, the modern global automotive industry encompasses the principal manufacturers, General Motors,
Ford, Toyota, Honda, Volkswagen, and Daimler Chrylser, all of which operate in a global competitive
marketplace. It is suggested that the globalization of the automotive industry, has greatly accelerated during
the last half of the 1990's due to the construction of important overseas facilities and establishment of
mergers between giant multinational automakers.

Industry specialists indicate that the origins in the expansion of foreign commerce in the automobile industry,
date back to the technology transfer of Ford Motor Company's mass-production model from the U.S. to
Western Europe and Japan following both World Wars I and II. The advancements in industrialization led to
significant increases in the growth and production of the Japanese and German markets, in particular. The
second important trend in industrial globalization was the export of fuel efficient cars from Japan to the U.S.
as a result of the oil embargo from 1973 to 1974.

Increasing global trade has enabled the growth in world commercial distribution systems, which has also
expanded global competition amongst the automobile manufacturers. Japanese automakers in particular,
have instituted innovative production methods by modifying the U.S. manufacturing model, as well as
adapting and utilizing technology to enhance production and increase product competition.

Competitive strategies to outperform Toyota in the next decade

The three great trading entities of auto manufacturing – Asia, the US, Europe – have all pursued different
strategies over the last decade in their pursuit of growth and during one of the biggest crisis of this industry.
One result is clear: Asia including China and India is still in the driving seat, the US strategy has failed, and if
Europe is not careful, its industry could go the way of the US.

How can European car makers fight back against the success of the asian automotive industry, including the
current industry benchmark, Toyota, and the emerging and ambitious new competitors such as Hyundai and
Maruti? How can we ensure that the European automotive industry follows a strategy that is successful and
sustainable?
This analysis represents the ‘European Way’ – a strategic approach that plays to the strengths and specific
characteristics of the European industry.

1. The current industry environment:

•The growth strategies pursued in automotive manufacturing within different regions over the last
decade
•The winners and losers from this growth effort
•What´s next for Europe to do for winning the next decade of industry competition?
2. The interrelated strategies that make up the European Way:
•Focusing on innovation - breakthrough in added value as well as in re-inventing the motoring of the
future
•Fixing products and processes - cost base and lean-load production planning
•Capturing downstream - customer value expectations and holistic concepts of new mobility
•Getting supplier relationship management right - common understanding of values and trust
•Embracing co-operation - the power of alliances and co-operation in competitive environment
•Transcending the industry - greener, safer and smarter mobility solutions for macro economy.
3. What this strategy could mean for European car manufacturers?
At the moment, car makers are pursuing various aspects of those strategies. Their unique combination as
'European Way' is a plan for countering the success of the Asian automotive industry.

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