This Document Contains Cases 1 to 4 Ryanair – 2011 Forest David A. Case Abstract Headquartered at the Dublin Airport in Ireland, Ryanair is a pioneer in European discount air travel. Ryanair Holdings offers low-fare, no-frills air transportation to about 160 destinations, including more than two dozen in Ireland and the UK. Ryanair serves more than 25 countries throughout Europe, plus Morocco. Ryanair specializes in short-haul routes between secondary and regional airports. It operates from more than 40 bases, including airports in Belgium, France, Germany, Italy, Spain, and Sweden, as well as in Ireland and the UK. The carrier maintains a fleet of about 270 Boeing 737-800s. Ryanair holds a 29 percent stake in Aer Lingus and has launched several unsuccessful bids to acquire the rival Irish airline. B. Vision Statement (proposed) Ryanair wants to become the number one travel choice for all local residents and tourists in Europe. C. Mission Statement (proposed) With Ryanair’s new technological planes we hope to please all of our European customers on their travel.(4,3) We hope to serve people of all ages while providing the best service money can buy.(1,2) We will bring our low price travel, with our dedication to helping our community(7,8) and with our marketing plan we hope to grow, while providing the best work experience for our employees. (5,9) We will treat everyone equally and with the upmost respect. 1. Customers 2. Products or services 3. Markets 4. Technology 5. Concern for survival, growth, and profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees D. External Audit Opportunities 1. Local competitors’ going bankrupt allows Ryanair to capture their customers and possibly buy equipment they are forced to sell. 2. Lower interest rate on borrowing money. 3. Down cycle of economy has increased potential profit because people are most cost sensitive. 4. Potential increase in investors due to high dividend payout - $500 million dividend. 5. The economy is recovering. 6. Cheaper vacation prices are being offered by resorts. 7. European countries lowering or doing away with tourist taxes will attract more vacationers. 8. Passengers expected to grow to 73.5 million by the beginning of 2012. Threats 1. Regulatory rules in Europe can change that would restrain the way Ryanair does business. 2. Increase in competitor customer service could attract customers to their airlines. 3. Cost increase at Dublin airport will lower passenger traffic through Dublin airport. 4. Weather threats operating in Europe during winter. 5. Fluctuations of foreign currency and longevity of the Euro. 6. Heavily unionized labor force. 7. Risk of oil rising back over $100 a barrel. 8. Weakening of the global economy. 9. Internet has led to more competitive pricing and more price sensitivity to industry. 10. Continued threat to industry’s human relations concerning displeasure over carbon dioxide emissions. Competitive Profile Matrix EFE Matrix E. Internal Audit Strengths 1. Owning 42 bases allows Ryanair to operate at a lower cost then competitors. 2. 92% of bookings being done over the internet lower cost by lower workers needed and telephone usage. 3. Ryanair being the second largest airlines in Europe is a well known company among European flyers. 4. 90% of Ryanair’s flights arrive on time. 5. Ryanair has created a niche in the market by offering many direct flights. 6. 284 new routes will allow Ryanair to capture new passenger business. 7. Profits increased by 204% due to an increase in planes, routes and passengers. 8. The down turn in the economic cycle and low fares has lead to an increase in traffic growth by 14%. 9. Ryanair forecast generating over $1 billion in surplus cash. 10. Have 51 new planes. Weaknesses 1. Low customer loyalty because of a no refund policy and relax attitude on canceling of flights. 2. Poor customer service leaves an opening for competitors to capture our customers. 3. Ryanair advertisements may be viewed as poor do to the use of vulgar, explicit, and sexual material. 4. Ryanair’s lack of major city destinations. 5. Low market growth opportunities. 6. Staff cost increased by 8%. 7. Ryanair charges customers for many ancillaries items that are free on most other airlines. 8. Maintenance cost increased by 29%. Financial Ratio Analysis Growth Rate Percent Ryanair Industry S&P 500 Sales (Qtr vs year ago qtr) 21.20 24.80 14.50 Net Income (YTD vs YTD) NA NA NA Net Income (Qtr vs year ago qtr) 22.40 -47.60 48.60 Sales (5-Year Annual Avg.) 16.48 13.50 8.30 Net Income (5-Year Annual Avg.) 4.08 12.07 8.72 Dividends (5-Year Annual Avg.) NA 9.45 5.61 Profit Margin Percent Gross Margin 26.3 25.2 39.5 Pre-Tax Margin 13.4 7.5 18.2 Net Profit Margin 11.9 6.0 13.2 5Yr Gross Margin (5-Year Avg.) 26.3 26.0 39.7 Liquidity Ratios Debt/Equity Ratio 1.10 0.70 0.98 Current Ratio 2.3 1.0 1.3 Quick Ratio 2.3 0.9 0.9 Profitability Ratios Return On Equity 15.3 17.2 26.0 Return On Assets 6.0 4.6 8.8 Return On Capital 7.2 6.2 11.8 Return On Equity (5-Year Avg.) 10.5 16.7 23.8 Return On Assets (5-Year Avg.) 4.1 4.3 8.0 Return On Capital (5-Year Avg.) 5.2 5.9 10.8 Efficiency Ratios Income/Employee 79,870 28,998 126,792 Revenue/Employee 672,501 425,198 1 Mil Receivable Turnover 79.8 43.0 15.2 Inventory Turnover 957.9 261.1 12.4 Net Worth Analysis (in millions) IFE Matrix F. SWOT SO Strategies 1. Invest $100 million in terminal space annually at new airports not currently serviced (S1, O2). WO Strategies 1. Increase advertising by $100 million to target price conscious consumers (S7, O5, O6, O7). ST Strategies 1. Hedge $100M per year to protect against rising oil cost (S7, O7). WT Strategies 1. Spend $5 million annually to improve customer service (W2,T2). G. SPACE Matrix H. Grand Strategy Matrix I. The Internal-External (IE) Matrix J. QSPM K. Recommendations 1. Increase advertising by $100 million to target price conscious consumers. 2. Invest $100 million in terminal space annually at new airports not currently serviced. 3. Hedge $100M per year to protect against rising oil cost. L. EPS/EBIT Analysis (in millions) Amount Needed: $300M Stock Price: $29.03 Shares Outstanding: 292 Interest Rate: 5% Tax Rate: 11% M. Epilogue Ryanair has ambitious plans to increase the number of passengers flying with Europe’s leading low-cost airline each year from 70m to up to 130m over the next decade, by buying as many as 300 aircraft. CEO Michael O’Leary plans to take a large delivery of aircraft between 2015 and 2021, and is presently in talks with US, Chinese and Russian manufacturers. Ryanair currently has an all-Boeing fleet but wants to negotiate low prices for new planes with any number of manufacturers, including China’s Comac and Russia’s Irkut. Ryanair desires to purchase 200 to 300 narrow-body aircraft to enlarge Ryanair’s fleet from 300 to 500 – some new jets would replace older ones – and enable the airline to increase passenger numbers. “I would like to grow to 120m, 130m passengers,” said Mr O’Leary. In 2010-11, 72.1m passengers flew with Ryanair. At 130m passengers, Ryanair would consolidate its position as one of the world’s largest airlines. In contrast, Lufthansa, Europe’s largest airline by revenue, flew 91 million passengers in 2010 and Southwest flew 88m passengers in 2010. Ryanair’s expansion in recent years has focused on Italy and Spain, but the company now has big growth plans for Scandinavia and Eastern Europe. The company recently outlined plans for soon deploying 50 aircraft in Scandinavia and 100 in Eastern Europe. On November 1, 2011, Ryanair recently instituted a new $9.50 fee that customers must pay unless they purchase tickets using the airline's own prepaid MasterCard. The new administrative fee is 6 pounds (about $9.50) for each one-way flight -- so double the fee for a round-trip ticket. Consumer groups criticized the move from an airline already well known for an array of fees. Richard Lloyd, executive director of the UK consumer-advocacy group Which?, said Ryanair was making it difficult for customers to avoid a surcharge when paying for flights. He called on the UK government to ban charges on debit cards that only appear at the end of the online booking process. Ryanair Holdings PLC spokesman Stephen McNamara countered that the airline offers low fares and no fuel surcharges and gives customers a way to avoid the booking fee. Currently, Ryanair waives its "admin fee" of 6 pounds for customers who use any MasterCard prepaid debit card. Ryanair said it will sell the new card on its site for 6 pounds and give buyers a travel voucher in the same amount. Ryanair charges fees for a variety of other services including checking bags, priority boarding, reserving a seat and carrying a musical instrument or infant gear such as a car or booster seat. The airline says it charges such fees to keep fares as low as possible for passengers who don't require extras. The Emirates Group – 2013 Forest R. David A. Case Abstract Headquartered in Dubai in the United Arab Emirates, the Emirates Group is the parent of Emirates, the largest airline in the Middle East, operating over 2,500 flights per week from its hub at Dubai International Airport. Emirates flies to 120 cities in 70 countries and operates 4 of the world’s 10 longest non-stop commercial flights. With 50,000 employees and 50 subsidiaries, the Emirates Group is wholly owned by the government of Dubai and controlled by the Investment Corp. of Dubai. Emirates is very profitable and growing over 20% annually. After beginning flights from Dubai to Warsaw, Algiers, Tokyo Haneda, and Stockholm in mid-2013, the Emirates is preparing to launch flights to Conakry in Guinea, Sialkot in Pakistan, Kabul, Kiev, Taipei, and Boston in the coming months. In October 2013, Emirates began flights from Dubai to Clark in the Philippines, a nonstop flight between Milan and New York, and a brand new A380 service to Brisbane. A clear strategic plan is needed for the firm to know when and where globally to roll out its popular services. B. Vision Statement (proposed) To be recognized as the leading airline globally in providing the highest quality, service, and convenience. C. Mission Statement (proposed) The Emirates Group aspires to be the recognized leading airline (2) globally (3) in providing the highest quality, service, technology, (4) and convenience (7) to our customers (1) in the air and on the ground. Exemplary business ethics (6) in caring for our employees (9), customers, the environment, and the communities (8) we serve is of paramount importance, as we strive to grow profitably for our shareholders (5). 10. Customers 11. Products or services 12. Markets 13. Technology 14. Concern for survival, growth, and profitability 15. Philosophy 16. Self-concept 17. Concern for public image 18. Concern for employees D. External Audit Opportunities 1. The Dirham is pegged to the US Dollar so currency fluctuations are not significant. 2. The Government of Dubai treats Emirates as a wholly independent business entity on its own, and attributes this to the firm’s success. 3. Dubai International Airport is expected to be the world’s busiest by 2016. 4. For fiscal 2012, Singapore Air profits were down $756 million to $336 million or 69%. 5. In 2013, profits in the airline industry are expected to continue to rise to $8.4 billion. North American carriers are expected to end 2012 with a collective net profit of $2.4 billion, despite GDP growth of only 2.0% and oil at a high price of $109.5/barrel. 6. Backed financially by the Dubai government. 7. British Airways, Delta, US airways and other carriers serving Europe and the USA do not offer near the level of service as Emirates. 8. Growing middle class around the world. 9. Air traffic is forecasted to grow 5.3% annually between 2012 and 2016. 10. Through 2016, the USA will remain the single largest market for domestic passengers at 710 million annually. Threats 1. Singapore Air is considered the closest competitor based on an overall business model of top service at a premium price and markets served. 2. Women are traditionally not allowed the same access to upper level jobs in the Middle East as men. 3. Rising fuel prices hurt overall profits, as fuel accounts for over 40% of all costs for Emirates. 4. The Arab Spring and instability in Africa also hurt profits, but the company’s net profit for fiscal 2012 was $629 million, down 61% from prior year. 5. Over 100 different airlines provide service to Dubai International Airport. 6. Singapore Air markets they are the only airline to offer a standalone bed, not a converted seat. 7. Delta, British Airways, and other airlines are well entrenched in serving the USA. 8. Three of the largest alliances in the world are SkyTeam, Star Alliance and Oneworld. SkyTeam is based out of Amsterdam and was created in 2000 by founding members: Delta, Air France, Aeromexico, and Korean Air. 9. Volatile price of oil. 10. Ironically for Emirates, the flydubai discount airline may pose the largest threat to the firm, as demand for low price flights is growing rapidly globally. 11. Competitive Profile Matrix Emirates is doing exceptionally well when compared to peers Delta and Singapore Air. A rapidly growing firm, Emirates has one area that needs addressing, expansion in the USA. EFE Matrix Emirates is doing an excellent job of addressing external issues as indicated by the score of 3.06. Not being a member of a major alliance is problematic for Emirates, but the new alliance with Quantas is a step in the right direction. E. Internal Audit Strengths 1. The largest airline in the Middle East, Emirates flies to over 120 destinations in 70 countries on 6 continents. 2. Operates a fleet of over 170 aircraft and has another 230 aircraft on order worth about $84 billion. 3. Most of the company’s planes include spacious private suites, and some planes provide a spa with showers. 4. Provide excellent service in Business Class, and Economy Class. 5. Emirates reported a profit for the 24th consecutive year in fiscal 2012 with revenues up 18% from the previous year, and the best year ever for Dnata, which had revenues of $1.9 billion. 6. History of acquiring firms such as Travel Republic Ltd. and Alpha Flight Group for fair prices. 7. Cargo revenues account for 15% of all revenue from the Emirates segment. 8. Emirates has aligned itself with high-level soccer teams and the US Open Tennis Tournament, providing excellent marketing on a global scale. 9. In fiscal 2012 alone, Emirates started long haul flights to Seattle, Dallas/Fort Worth, Rio de Janeiro, Buenos Aires, Washington DC, Geneva, Baghdad, and St. Petersburg, Russia, among others. 10. In January 2013, Emirates and Quantas, two rival firms, partnered to allow Quantas passengers to use the nicest terminal in Dubai in exchange for Quantas moving its hub for European flights from Singapore to Dubai. Weaknesses 1. No women are among the company’s top management team. 2. The Americas only accounted for 11% of Emirates segment total revenue in 2012. 3. Not a member of any strategic alliance that pools multiple aircraft companies together. 4. Company’s net profit for fiscal 2012 was $629 million, down 6% from prior year. 5. Heavy reliance on domestic revenues (around 50%) for the Dnata segment. 6. Dnata segment overall only accounts for around 10% of total revenues. 7. Does not offer full size beds in cabins for higher end customers. 8. Slow to enter the USA market. 9. Not a publically traded company. Net Worth Analysis (in millions) Emirates is doing well financially, worth around $6 billion USD. Delta has much of its capital tied up in goodwill and intangibles and reports a negative stockholders’ equity, making the firm more difficult to price. IFE Matrix Emirates is doing very well on internal issues as the score of 3.14 reveals. Difficulty passing on increasing prices in fuel and slow movement into the USA markets are two key areas to improve upon. F. SWOT SO Strategies 1. Order 70 additional aircraft for $25 billion (S2, S3, O1, O2). 2. Have 20 of the 70 extra plans configured to be entirely business class (S2, S3, S4, O5). 3. Partner with several to be determined NFL teams (S8, O1, O5, O10). WO Strategies 1. Aggressively hire women to manage US operations based in New York City (W1, O5, O10). 2. Acquire a catering service in the USA under the Dnata segment (W6, W9, O5, O10). 3. Have 5 of the 70 planes ordered above 100% suite design in nature with full size beds (W7, O4). ST Strategies 1. Aggressively hire women to manage US operations based in New York City (W1, T2). 2. Extend the long-term contract with Quantas to have their European based flights connect through Dubai (S10, T1, T8). 3. Increase flights to the USA by 200% by 2015 (S2, S5, S9, T7). WT Strategies 1. Increase flights to the USA by 200% by 2015 (W2, W5, W9, T7). 2. Extend the long-term contract with Quantas to have their European based flights connect through Dubai (W3, T1, T8). 3. G. SPACE Matrix Placed in the Aggressive Quadrant, Emirates should add more routes, most notably in the USA. Also, increasing the size of the fleet of aircraft to better serve existing markets would be a viable strategy. H. Grand Strategy Matrix Growth in the middle class around the world is spurring revenue growth among airlines. Emirates holds a strong competitive advantage, especially with respect to providing service for higher end passengers. I. The Internal-External (IE) Matrix Segment 2012 Total Sales (in millions of AED) West Asia 7,083 Middle East 6,314 Africa 6,130 Other Total (West Asia, Middle East, Africa) 19,609 East Asia and Australasia 18,227 Europe 17,058 Americas 6,696 Total 61,508 J. QSPM Both options have approximately the same weighted scores, and with Emirates capital position, both should be implemented. Especially considering the extra planes will help facilitate moving into the USA market more aggressively. K. Recommendations 1. Partner with several to be determined NFL teams. 2. Order 70 additional aircraft for 25 billion. 3. Aggressively hire women to manage US operations based in New York City. 4. Acquire a catering service in the USA under the Dnata segment. 5. Have 20 of the 70 extra plans configured to be entirely business class. 6. Extend the long term contract with Quantas to have their European based flights connect through Dubai. 7. Increase flights to the USA by 200% by 2015. L. Epilogue On June 18, 2013 in Paris, France, Emirates was awarded the highly coveted ‘World’s Best Airline’ award, presented by Skytrax at the 2013 World Airline Awards. The company also received two other awards including: ‘Best Middle East Airline’ and for a record ninth year in a row, ‘World’s Best Inflight Entertainment.’ The Skytrax World Airline Awards polled over 18 million business and leisure air travelers from more than 160 countries. On June 5, 2013 in Munich, Germany, Emirates SkyCargo, the freight division of Emirates, was awarded the ‘Cargo Airline of the Year 2013’ award at the Air Cargo Week World Air Cargo Awards. Emirates SkyCargo earlier in 2013, significantly boosted its cargo capacity with the addition of three new Boeing 777F aircraft, taking its freighter fleet to 10 aircraft and its dedicated freighter network to 13 destinations: Taipei, Chittagong, Eldoret, Lilongwe, Chicago, Almaty, Gothenburg, Zaragoza, Viracopos, Tripoli, Djibouti, Hanoi and Liege. Emirates SkyCargo currently serves a route network of more than 130 destinations in 77 countries, spanning six continents across the globe. On May 14, 2013, JetBlue Airways and Emirates announced expansion of their current partnership to include bilateral code sharing, pending FAA and DOT regulatory approval, whereby JetBlue will place its “B6” airline code on all flights currently operated by Emirates between the USA and Dubai International Airport, as well as between New York’s John F. Kennedy International Airport (JFK) and Milan, Italy. The agreement deepens a three-year partnership between JetBlue and Emirates. Emirates started placing its code on select JetBlue-operated flights in April 2012, expanding an interline agreement that dates back to 2010. Current codeshare routes offered by Emirates on JetBlue-operated flights cover 28 destinations. United Parcel Service Inc. – 2013 Forest David E. Case Abstract Headquartered in Atlanta, Georgia, the United Parcel Service competes as a multinational package delivery, freight forwarding, and other business services company. The company serves over 220 countries and territories worldwide as well providing extensive shipments to virtually everywhere in the USA. The company is the world’s largest publically held shipping company that delivers directly to the consumer with revenues exceeding $50 billion in both 2011 and 2012. The company has recently agreed to a new labor agreement with their employees that contributed to operating income falling from $6 billion in 2011 to $1.3 billion in 2012. F. Vision Statement (proposed) To become the most recognized shipping brand worldwide. G. Mission Statement (actual) We seek to grow our global (3) business by serving the logistics needs (2) of customers (1) offering excellence and value in all that we do. Maintain a financially strong company (5) with broad employee ownership (9) that provides a long germ competitive return to our shareholders. Inspire our people and business partners to do their best, offering opportunities for personal development and success. Lead by example as a responsible, caring and sustainable company (8) making a difference in the communities we serve. (proposed) We strive to be the most timely and dependable parcel and freight forwarding delivery service (2) in the world (3). By implementing the latest tracking technology, (4) we are able to profitably grow (5) our business by offering customers (1) more dependable and accurate delivery times. To maintain our position as the largest parcel delivery company in the world, (7) we work closely with our employees (9) promoting from within to improve morale among all employees. Our philosophy (6) is to balance the need to take care of both our employees and shareholders, while serving the communities (8) in which we operate in a sustainable and positive manner. 19. Customers 20. Products or services 21. Markets 22. Technology 23. Concern for survival, growth, and profitability 24. Philosophy 25. Self-concept 26. Concern for public image 27. Concern for employees 28. H. External Audit Opportunities 1. Trade across borders to grow much more than growth in the USA resulting in increased trade among USA and foreign markets. 2. The nature of the industry makes it difficult for startup firms to compete in the market. 3. Joint ventures with firms in emerging markets are available for geographic expansion. 4. Increasing demand outsourcing the supply chain by pharmaceutical companies as drug patents expire. 5. Firms such as Amazon and EBay promote direct business to consumer shipping. 6. Over 50% of all holiday shopping is expected to be delivered by mail in the next 3 years. 7. Allowed to borrow up to $10 billion in commercial paper from US sources and 1 billion Euros from European Commercial Paper sources.. 8. Obama Administration has the goal to double exports by 2015. 9. High tech shipments of smartphones and similar devices to grow 22+% in India, Middle East, Africa in the next 3 to 5 years and 15+%in Eastern Europe and South America. 10. Increasing European Union membership streamlines customs and border control in these markets. Threats 1. The United States Postal Service reports revenues around 20% higher than UPS and is backed by the US government. 2. FedEx and DHL are top global competitors. 3. European Commission blocked the proposed acquisition of TNT Express, and other foreign governments could implement similar measures. 4. 250,000 employees are affiliated with Teamsters and 1,600 pilots are members of the Independent Pilot’s Association. 5. Slowing of world economies reduces demand for products and causes customers to ship more by standard rather than express shipping. 6. The world is becoming more of a service economy rather than manufacturing based. 7. Jet fuel prices have doubled in the last 5 years. 8. Constant regulations with governments on pollution and maintenance requirements for aircraft and vehicles. 9. E-mail eroding dramatically into the volume of letter mailing. 10. Competitive Profile Matrix UPS is well positioned within the CPM Matrix when compared to USPS and competitive with FedEx The firm should work on improving the relationship with its unions moving forward and continue internal expansion. EFE Matrix UPS’s EFE score of 2.77 is above average. One of the largest threats facing UPS is that the world is increasingly becoming technology based and less manufacturing based. UPS likely needs to establish more agreements with technology firms to ship their products, and also form joint ventures in developing markets. E. Internal Audit Strengths 1. UPS is the largest privately-held logistics company in the world providing service to 220 countries. 2. UPS has 40,000 drop boxes, 1,000 customer centers, 4,700 independently owned UPS stores, and 86,300 drivers. 3. New air hubs in Shanghai and Shenzhen. 4. UPS opened 12 new health care facilities on 4 different continents between 2011 and 2012. 5. 40% of full time managers have over 20 years experience with UPS. 6. Top 20 customers account for less than 10% of consolidated revenues. 7. Strong advertising campaign and brand equity. 8. Hubs or major presence in USA, Canada, Germany, Turkey, Hong Kong, China and others. 9. In addition to package delivery, UPS now offers supply chain solutions, freight forwarding, customer’s brokerage, and even repairs. 10. 40% of 2012 revenues were derived form business to consumer shipments. Weaknesses 1. Only 25% of 2012 revenues were derived from international markets, with half of these being derived from Europe. 2. Total operating profit fell from $6 billion in 2011 to $1.3 billion in 2012 largely due to a 20% increase in compensation and benefits during this period resulting from a new collective bargaining agreement with the Teamsters. 3. Historically, UPS has not been in a position to raise fuel surcharge rates as fast as fuel prices have increased. 4. UPS flies 5 different types of aircraft making maintenance and spare inventory parts more costly and problematic. 5. Goodwill accounts for 45% of all equity. 6. Not serving the Chinese market to the extent necessary. 7. 268 cargo jets compared to FedEx’s 694. 8. Packaging segments in both domestic and international markets have experienced little growth over the last 5 years. 9. Has a culture of promoting from within, possibly limiting new knowledge from entering the company. 10. Debt to equity ratio of 3.0 Financial Ratio Analysis Profit Margin Percent UPS Industry Gross Margin 76.72 58.57 Pre-Tax Margin 1.69 4.21 Net Profit Margin 1.52 2.78 Liquidity Ratios Debt/Equity Ratio 3 0.64 Current Ratio 1.84 1.83 Quick Ratio 1.62 1.63 Profitability Ratios Return On Equity 14.72 12.98 Return On Assets 2.24 4.48 Return On Capital 2.59 8 Efficiency Ratios Income/Employee 2,077.69 6,160.23 Revenue/Employee 136,799.5 219,293.87 Receivable Turnover 9.94 8.72 Inventory Turnover NA 29.69 Asset Turnover 1.48 1.61 UPS is not doing as well as the industry at large and struggles with excess debt. Net Worth Analysis (in millions) UPS is worth considerably more than FedEx based on the last two methods. However, after a poor year in 2012, FedEx is worth considerably more than UPS on the first two methods. IFE Matrix UPS is doing above average on internal issues. However, the firm needs to work on improving their financial situation and form more joint ventures with firms outside the USA. F. SWOT SO Strategies 1. Build a new hub in Germany to better serve the European market and compete directly with DHL (S1, S8, S9, O1, O7, O8, O9). 2. Open 12 additional new health care facilities to aid the transport of medical supplies and products (S4, O1, O4). 3. Spend an additional $50 million on advertising in Europe (S7, O1, O6, O7, O8, O9). 4. Invest $500 million in expanding supply chain solutions, freight forwarding, and customers' brokerage world wide over the next 3 years (S9, O1, O4, O6). WO Strategies 1. Build a new hub in Germany to better serve the European market and compete directly with DHL (W1, W8, O1, O7, O8, O9). 2. Spend an additional $50 million on advertising in Europe (W1, W8, O1, O6, O7, O8, O9). 3. Purchase another 50 cargo jets of the same make and model (W1, W4, W6, W7, O1, O6, O8). 4. Identify 5 new major joint venture opportunities to help expansion in new markets (W1, W2, W6, O1, O3). 5. Hire 3 new executives from outside the company to help facilitate the growing demand of pharmaceutical companies have of managing their supply chain (W9, O4). ST Strategies 1. Work with Amazon to ensure exclusive shipping of all products purchased (S1, S6, S7, S10, T1, T2). 2. Increase freight forwarding and supply chain management services by 50% over the next 3 years (S1, S9, T5, T6, T9). 3. Increase advertising in markets dominated by FedEx and DHL by 50% over the next 3 years (S7, T2). WT Strategies 1. Build a new hub in San Paulo, Brazil to better serve the South American market (W1, W8, T2, T3) 2. Increase fuel futures contracts by 100% (W3, T8). 3. G. SPACE Matrix UPS is in the aggressive quadrant but is hampered by excessive Goodwill on the Balance Sheet and reduced Net Income resulting in unfavorable outcomes with negotiations with employees and their respective labor unions. H. Grand Strategy Matrix UPS has a Strong Competitive Position in the industry but should attempt to grow the freight forwarding and non-shipping services businesses as the industry is growing slowly in traditional shipping and losing growth in express shipping. I. The Internal-External (IE) Matrix 2012 Segment Total Sales (in millions) Profit US Domestic Package $32,856 $459 International Package 12,124 869 Supply Chain & Freight 9,147 15 Total 54,127 1,343 The International Package segment reported the largest profits in 2012, despite having around 1/3 the revenues of the International Package segment. This could be partly explained by the new collective bargaining agreement with the Teamsters. Supply Chain & Freight, while reporting respectable revenues only, reported profits of $15 million. J. QSPM The QSPM reveals each broad strategy is relatively equal in desirability. UPS should continue both domestic and international packaging expansion as well as penetrating new markets and developing existing markets for its Freight Forwarding and Supply Chain management. K. Recommendations 1. Build a new hub in Germany to better serve the European market and compete directly with DHL for $250M. 2. Open 12 additional new healthcare facilities to aid the transport of medical supplies and products for $200M. 3. Spend an additional $50 million on advertising in Europe. 4. Invest $500 million in expanding supply chain solutions, freight forwarding and customers brokerage world wide over the next 3 years. 5. Hire 3 new executives from outside the company to help facilitate the growing demand of pharmaceutical companies have of managing their supply chain for $500k. L. EPS/EBIT Analysis (in millions expect for EPS and Share Price) Amount Needed: $1,000M Stock Price: $90.92 Shares Outstanding: 938 Interest Rate: 5% Tax Rate: 17% The estimated EBIT is difficult to predict for UPS, considering historically, it is around $5 to $6 billion but was only $1.3 billion in 2012, based largely on the additional salary and benefits paid to employees. Debt financing maximizes EPS during prosperous times; however, it is unclear just how much capital UPS can acquire with its current highly leveraged debt situation. M. Epilogue UPS in June 2013 increased its freight rates by 5.9 percent on shipments in the U.S., Canada and Mexico that were less-than-truckload (LTL) and truckload (TL) rates. UPS also raised its rates by 4.5 percent on UPS Air and International Services products of the domestic package business. Ground Services rates, Express rates, and Airfreight (including Next Day Air, 2nd Day Air and 3 Day Freight between U.S. Canada and Puerto Rico) rates were increased by 4.9 percent. In May 2013, UPS opened a new healthcare facility in Hangzhou, Zhejiang Province, China, significantly expanding its Asia healthcare distribution network. The high-tech facility is designed to offer seamless, global solutions to healthcare companies looking to expand into, transport within, and export from China. The facility consists of 22,000 square meters of dedicated healthcare space, and is designed to meet the specific storage and distribution needs of pharmaceutical companies. “With many healthcare companies demanding rigorous supply chain solutions in China, we are seeing increasing opportunities,” said Richard Loi, President of UPS China. “The UPS Hangzhou facility, along with our existing Shanghai medical device facility, will speed products to key markets within China, and underscores UPS’s commitment to strengthening our China network.” The new Hangzhou facility is part of UPS’s global healthcare expansion strategy. The company opened its first Asia healthcare facility in Singapore in 2011, and followed rapidly with opening three additional facilities in Q3 of 2012, located in Hangzhou and Shanghai, China, and Sydney, Australia. UPS provides healthcare companies specialized freight and small package transportation and distribution services through a global healthcare network of 41 dedicated healthcare facilities encompassing 595,000 square meters. The network offers temperature-sensitive handling, geographic-specific regulatory compliance, monitoring and security, kitting and labeling. Also in May 2013, UPS was awarded the International Standardization Organization (ISO) 13485:2003 and ISO 9001:2008 certifications recognizing its quality management system across its global healthcare logistics network. “Our ISO certification substantiates UPS’s commitment to quality on a global scale,” said Craig Foster, senior vice president, supply chain and healthcare logistics, UPS Asia Pacific Region. “Our dedicated healthcare facilities in the APAC region enable comprehensive and compliant services to customers in the pharmaceutical, biotech and medical device industries.” Amazon – 2011 Forest David A. Case Abstract Amazon.com, Inc. is a Fortune 500 company based in Seattle, Washington. Amazon bursts onto the Internet retailer scene in July 1995 and today offers the biggest selection of products among all companies worldwide. Amazon.com, Inc. seeks to be a company where customers can find and discover anything they might want to buy online. The company strives to offer customers the lowest possible prices on millions of unique new, refurbished and used items in categories such as Books; Movies, Music & Games; Digital Downloads; Electronics & Computers; Home & Garden; Toys, Kids & Baby; Grocery; Apparel, Shoes & Jewelry; Health & Beauty; Sports & Outdoors; and Tools, Auto & Industrial. Amazon recently introduced new, under $100 non-color and under $200 color Kindle e-readers, with aggressive plans for both video and self-publishing. Amazon now competes with a variety of technology companies such as Apple with its e-reader and with Netflix for streaming video, which is an area where the Kindle Touch and Kindle Fire will play. Amazon also competes with eBay and discount retailers like Best Buy and Wal-Mart for its electronic products, books and apparel. Amazon’s latest generation Kindle is the lightest, most compact Kindle ever and features the same 6-inch, most advanced electronic ink display that reads like real paper even in bright sunlight. Kindle Touch 3G is a top of the line e-reader and offers the same new design and features of Kindle Touch, with the unparalleled added convenience of free 3G. Kindle Fire is the Kindle for movies, TV shows, music, books, magazines, apps, games and web browsing with all the content, free storage in the Amazon Cloud, Whispersync, Amazon Silk (Amazon’s new revolutionary cloud-accelerated web browser), vibrant color touch screen, and powerful dual-core processor. B. Vision Statement (proposed) To become the number 1 online retail store in the world. C. Mission Statement (proposed) At Amazon we strive to offer our customers (1) a wide range of products including everything from books, media, watches, sleeping bags to home furnishings and much more (2) all at the best price available (7) from the most trustworthy merchants (5, 6). Our team of executives is the best in the industry and we offer them attractive salary and benefit packages (9). We strive to serve the United States and world markets (4) by using the latest technology to ensure smooth safe transactions (4). At Amazon we also believe in being a good corporate citizen and giving back to the communities in which we operate (8). 29. Customers 30. Products or services 31. Markets 32. Technology 33. Concern for survival, growth, and profitability 34. Philosophy 35. Self-concept 36. Concern for public image 37. Concern for employees D. External Audit Opportunities 1. Online shopping provides convenience, greater choices and often tax free shopping. 2. Weak stock market and IPO environment will limit startup companies for forming. 3. Stock price is near all time highs with PE ratio of 114. 4. Weak dollar should boost international sales. 5. More people know English now than ever before. 6. Digital distribution of media is growing at a rate of 30% a year. 7. Internet companies fared better than traditional companies during the economic downturn. Threats 1. Chinese company 360buy.com expects to report 2010 revenues in excess of $1.5 billion. 2. Barnes & Noble, Borders Group, and Books a Million are large brick and mortar and web based competitors. 3. PayPal is owned by competitor EBay 4. Potential for attacks on Amazon’s website and servers. 5. PE ratio of 114, stock is likely vastly overvalued at present. 6. Poor global economy has reduced personal spending. 7. Barriers to entry are low as startups can be launched for relatively low costs. 8. Mergers continue across many different Internet based segments Competitive Profile Matrix EFE Matrix E. Internal Audit Strengths 1. Amazon was named world’s top brand in 2010. 2. Amazon added 28 new fulfillment centers in 2010 and 2011 to bring their total to 52 centers. 3. Kindle is offered in more than 100 countries. 4. Strategic relationship with McGraw-Hill in 2009 to target sales in higher education markets. 5. In 2010 Amazon, increased jewelry sales by 13 percent while competitors experienced drops of over 20 percent. 6. Net sales were up 80% from year end 2008 to 2010. 7. Net sales from electronics were up 150% from 2008 to 2010. 8. Business Week named Amazon number one in customer service in 2010. 9. CEO Bezos has hired executives from Wal-Mart, Microsoft, Barnes & Noble, and other top companies. 10. Amazon increased their employees by 45% in 2011. Weaknesses 1. Amazon lacks a clear mission statement. 2. Net sales in media have been stable over the last 3 years. 3. Only one woman in upper management. 4. Goodwill has increased by 200% from 2008 to 2010 to $1.3 billion. 5. Streaming movies for free to Prime subscribers hurts margins. 6. Over $3 billion in inventory that must be stored and maintained. Financial Ratio Analysis Growth Rate Percent Amazon Industry S&P 500 Sales (Qtr vs year ago qtr) 43.90 37.70 14.40 Net Income (YTD vs YTD) NA NA NA Net Income (Qtr vs year ago qtr) -72.70 -24.40 49.60 Sales (5-Year Annual Avg.) 32.14 24.34 8.29 Net Income (5-Year Annual Avg.) 28.17 22.20 8.71 Dividends (5-Year Annual Avg.) NA NA 5.64 Profit Margin Percent Gross Margin 22.5 37.5 39.0 Pre-Tax Margin 2.7 7.6 18.2 Net Profit Margin 2.0 6.5 13.2 5Yr Gross Margin (5-Year Avg.) 22.5 38.5 39.7 Liquidity Ratios Debt/Equity Ratio 0.00 0.11 0.97 Current Ratio 1.3 1.4 1.2 Quick Ratio 0.9 0.6 0.8 Profitability Ratios Return On Equity 12.3 11.7 27.8 Return On Assets 5.3 5.8 8.8 Return On Capital 9.8 9.4 11.8 Return On Equity (5-Year Avg.) 25.7 19.6 23.9 Return On Assets (5-Year Avg.) 7.6 7.4 8.0 Return On Capital (5-Year Avg.) 17.1 14.0 10.8 Efficiency Ratios Income/Employee 26,083 44,745 126,738 Revenue/Employee 1 Mil 999,218 1 Mil Receivable Turnover 35.5 25.1 15.2 Inventory Turnover 10.7 7.2 12.3 Net Worth Analysis (in millions) IFE Matrix F. SWOT SO Strategies 1. Add 10 new fulfillment centers financing by common stock (S2, O3). 2. Expand Kindle into 50 new countries in the next 3 years (S3, O4, O5). 3. Hire 3 more top executives from leading companies (S9, O7). WO Strategies 1. Move more toward a JIT inventory system and have merchants ship products direct rather than having large inventory (W3, W7, O6). 2. Increase advertising by 20% in international markets for the sell of media related products (W2, O4). ST Strategies 1. Increase marketing and advertising in China by 15% (S1, T1). 2. Develop an online payment system to rival PayPal (S6, S7, S9, O3). WT Strategies 1. Develop a detailed mission statement to better compete in a weak economy. (W1, T6). 2. Increase advertising by 15% in media to compete with the brick and mortar retail bookstores. (W2, T2). G. SPACE Matrix H. Grand Strategy Matrix I. The Internal-External (IE) Matrix Revenues (in millions) Product Class 2010 2009 2008 Media $14,888 $12,774 $11,084 Electronics & General Merchandise 18,363 11,082 7,540 Other 953 653 542 J. QSPM K. Recommendations 1. Add 10 new fulfillment centers financing by common stock at $30M x 10 = $300M 2. Expand Kindle into 50 new countries in the next 3 years at $200M 3. Hire 3 more top executives from leading companies at $25M 4. Develop online payment system to rival PayPal at $300M L. EPS/EBIT Analysis (in millions) Amount Needed: $825M Stock Price: $217 Shares Outstanding: 454 Interest Rate: 5% Tax Rate: 24% M. Epilogue For its third quarter ended September 30, 2011, Amazon’s sales increased 44 percent to $10.88 billion, compared with $7.56 billion in third quarter 2010. Operating income was $79 million in the third quarter, compared with $268 million in third quarter 2010. However, Amazon’s net income decreased 73 percent to $63 million in the third quarter, compared with net income of $231 million in third quarter 2010. “September 28, 2011 was the biggest order day ever for Kindle, even bigger than previous holiday peak days – we introduced Kindle Fire for $199, Kindle Touch 3G for $149, Kindle Touch for $99, and our all new Kindle for only $79,” said Jeff Bezos, founder and CEO of Amazon.com. “In the three weeks since launch, orders for electronic ink Kindles are double the previous launch. And based on what we're seeing with Kindle Fire pre-orders, we're increasing capacity and building millions more than we'd already planned.” During that third quarter, Amazon introduced the Kindle Fire, a new class of Kindle for movies, TV shows, music, books, magazines, apps, games, and web browsing with all the content, free storage in the Amazon Cloud, Whispersync, vibrant color touch screen, a powerful dual-core processor, and “Amazon Silk” – Amazon’s new revolutionary web browser that accelerates the power of the mobile device by using the computing speed and power of the Amazon Web Services Cloud. Kindle Fire is only $199. Also during that quarter, Amazon introduced three all-new Kindle e-readers that are smaller, lighter, and more affordable than ever before. The $79 latest generation Kindle is for customers who want the lightest, most compact Kindle at an incredible price. The $99 Kindle Touch includes an easy-to-use touch screen. Kindle Touch 3G is the top of the line e-reader with the unparalleled convenience of free 3G where customers never have to hunt or pay for a Wi-Fi hotspot – you simply download and read books anytime and anywhere – all for $149. Each of these e-readers includes all the benefits of the most advanced electronic ink display that reads like real paper, even in bright sunlight. Amazon.com recently signed licensing agreements with Twentieth Century Fox and PBS that allow the millions of Amazon Prime members to instantly stream a broad selection of popular movies and TV shows from their vast libraries. These deals will bring the total number of Prime instant videos to more than 12,000 movies and TV shows from partners such as CBS, FOX, PBS, NBCUniversal, Sony, Warner Bros., and many more. Also, Amazon Publishing released 61 titles in the third quarter of 2011, including Kindle bestsellers “The Detachment” by Barry Eisler, “Dove Season” by Johnny Shaw, and “A Small Fortune” by Audrey Braun. Recent acquisitions include Tim Ferriss’ “The 4-Hour Chef,” Penny Marshall’s memoir “My Mother Was Nuts,” and the epic Foreworld Series project led by Neal Stephenson and Greg Bear. Amazon Publishing also announced a new imprint, 47North, which is dedicated to science-fiction, fantasy, and horror. 47North joins sister imprints AmazonEncore, AmazonCrossing, Powered by Amazon, Montlake Romance, and Thomas & Mercer. Amazon’s North America segment sales were $5.93 billion in the third quarter of 2011, up 44 percent from the year earlier quarter. The company’s international segment sales, representing German, Japanese, French, Chinese, Italian and Spanish sites, were $4.94 billion, up 44 percent from third quarter 2010. As of late 2011, Amazon collects sales tax in only five states -- Kansas, Kentucky, New York, North Dakota and Washington -- the only markets where it has stores or offices. But if other state and local governments have their way, this could soon change. A division of Amazon.com Inc., Quidsi is getting into groceries, taking on industry giants including Safeway Inc and Kroger Co. On its website Soap.com, Quidsi recently launched an online grocery business with about 7,000 products including coffee, tea, snacks, cereal, pasta, baking and canned goods. The company said it plans to increase the number of products to 10,000 in about two weeks. Groceries will be delivered in one to two days and shipping is free for orders over $39. Groceries are the latest retail category to be tackled by Quidsi, which was acquired by Amazon for about $500 million in late 2010. Quidsi also runs Diapers.com, which sells baby-care products; BeautyBar.com, a cosmetics website; Wag.com, an online pet care store; and YoYo.com, which sells toys. Instructor Manual Case for Strategic Management: Concepts and Cases Fred R. David, Forest R. David 9781292016894
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