MBA PROGRAMME

MASTER OF BUSINESS ADMINISTRATION

Graduate School of Business Universiti Kebangsaan Malaysia

INDIVIDUAL ASSIGNMENT
CLASS: LECTURER:

Strategic Management ZCZB6523 Prof. Dr Mohd Tusirin Bin Hj Mohd Nor

REVIEW OF CASE 3: ROOM & BOARD (IN RELATION TO CHAPTER 13: ENTREPRENEURIAL IMPLICATIONS FOR STRATEGY)
NAME Mohd Hatta Ahmad I.C. NO. 641225-05-5601 STUDENT NO. ZP00664

NO. 1.

Date: 10.09.11

CASE 3: ROOM & BOARD

STRATEGIC ENTREPRENEURSHIP AND INNOVATION Entrepreneurship is related to the discovery of profitable opportunities and the exploitation of that opportunities. Entrepreneurial opportunities are conditions in which goods and services can satisfy need in the market (Ireland, Hoskisson and Hitt, 2011). Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual (Drucker, 1998) Innovation is the primary objective sought by a firm embarking on entrepreneurialship and this was put forth by Schumpter that a firm engage in 3 types of innovation activities (Schumpter). This proposal by Schumpter is shown below: -

Invention
INTERNAL INNOVATION

Innovation

Imitation

Most innovation in established firms comes from the works done in research and development (R&D). These innovation activities at R&D could be categorized either as incremental or radical innovation. In the former, the markets are well defined and products characteristics are well known and the profit margin tends to be lower but the risk is relatively low. Example of this is new cosmetic changes made to a current car models. In the case of radical innovation, the market is untested, the product could be considered as pioneer and the risk is immense. However the return could be huge as in the case of iTunes and iPod for Apple Inc. AUTONOMOUS STRATEGIC BEHAVIOUR AND INDUCED STRATEGIC BEHAVIOUR In autonomous strategic behavior, the product champion pursue the concepts/ new ideas through bottom-up process. The product champion would be a person with entrepreneurialship brilliance that the drives the fruition of the idea. Induced Strategic Behaviour is top-down process where the firms strategy and organization structure inculcate the innovation processes. In order for innovation to work successfully, the management of the firm should be the driver to push through innovation culture throughout the firm.

CASE 3: ROOM & BOARD

EXECUTIVE SUMMARY Room & Board was a successful and unique privately owned home-furnishings retailers based in Minnesota with eight national retail stores, an annual catalog and a web site. Room & Board was unique as it based its business not on the normal maximization of the creation of wealth to the shareholders but on the basis valuing relationship between the stakeholders (from vendors right down to the workers and customers) ahead of the bottom line. What made Room & Board special was that the company produced exceptional financial results despite not subscribing to the standard retail-industry business model. The owner of the company, John Gabbert adopted relationship business model that disavowed debt and equity-growth financing and 25 years later he was at the cross-road, being 60 years old he had to decide how to institutionalized his business model in order to preserve the business.

HISTORY John Gabbert succeeded the furniture business from his father at the age of 24 and by the age of 33 he left the business to start on his own furniture business based on Ikeas business model. However he was frustrated, feeling unfulfilled he took the bold step to revamp the business model based on building business with people he liked and on a model that represented quality. Room & Board concentrated on quality home furnishing that created long lasting relationships with customers, vendors and employees

ANALYSIS EXTERNAL ENVIROMENT 1. Demographic Started off in Minnesota which is in the Mid-West of North America, an area well known for patriotism. Room & Boards products of heritage American sells well. 2. Economic Competition from other retail furniture stores that sell affordable products produced using mass manufacturing process or imported from developing countries. Room & Board cater to the customers who appreciate quality products and willing to pay for them as these products will serve many years to come

CASE 3: ROOM & BOARD

3. Technological and Design R & D especially in new furniture design. Also challenges in keeping with the in-trend and fashionable design which are not really a threat to Room & Board as it styling is related to heritage American. 4. Competitors Similar concept stores e.g. Design Within Reach and Crate and Barrell and other mass-produced furniture retail stores

INDUSTRY ENVIRONMENT ANALYSIS Board & Rooms industry environment analysis is described below based on Porters 5 Forces :FORCES Threat of New Entrant Rivalry Among Competing Firm Threat of Substitute Products Threat is HIGH as customers might be put off by the price of authentic heritage American furniture and opt for faux heritage American furniture due to economic pressure. Bargaining Power of Supplier Bargaining Power of Customer Bargaining power is LOW as Room & Board has built life-long partnership with the vendors Bargaining power is LOW as the cutomers choose Room & Board not on competitive pricing. Furthermore Room & Board has built the trust in the customers with its pricing as it never hold any discount sales or cheap sale. ANALYSIS Threat is LOW due to capital intensive (skilled carpenter and design) Rivalry is LOW due to small number of competitors.

INTERNAL ENVIRONMENTAL ANALYSIS The internal environmental analysis done on Room & Board using SWOT analysis is shown below: -

CASE 3: ROOM & BOARD

STRENGTH Good reputation in the market Good support from the vendors Solid quality reputation Cost pressure might cause Room & Fast and timely delivery to customers across America OPPORTUNITIES Huge market: Expected growth Supply to the big chain exclusive stores e.g. Macy Board to review its manufacturing process THREATS Other similar retail stores Cheap furniture retail shops (when the customers start to look for cheap alternatives) WEAKNESSES The interest of customers in heritage American furniture might wane over period of time

PERFORMANCE ANALYSIS The performance of Room & Board sales shows increasing trend since 1995 except for slight dip in 2002: -

Room & Board Sales 1995 to 2001

250 200 Sales 150 100 50 0 1 2 3 4 5 6 7 Years 5 8 9 10 11 12 13

CASE 3: ROOM & BOARD

1. John Gabbert has shown a successful strategic entrepreneurship where he applied a radical innovation when he first started the business model relationship based 25 years ago 2. From there on he continues with induced strategic behavior as he, being the owner and CEO of the firm, advocate for the relationship based model throughout the stakeholeders until it becomes the firms culture. 3. Gabbert continues with incremental innovation with his expansion plan is not aggressive with only 8 stores opened over the 25 years period

NEW CORPORATE LEVEL STRATEGIES The followings are possible mitigation measures to ensure the relationship model is preserved and institutionalized at Room & Board while maintain a reasonable profit: Adoption of New Technology Use of on-line ordering aggressively to increase sales and customer base Use of Enterprise Resource Planning system (if not done yet) to manage the ordering, delivery and inventory. Identifying and Grooming Potential Successor Identify and groom a potential replacement for himself either from his own family member or someone from external and groom him to have the aptitude of innovative leader Strenghtening The Workforce Provide and implement plans to ensure life-long employment like stock option upon retirement Continuous training of the work force and regular job rotation in non-critical areas to keep work force focused and motivated.