caseNo25iRobotFindingtheRightMarketMix.pdf

iRobot CoRpoRation, founded in 1990 in delawaRe, has designed and built a vast array of behavior-based robots for home, military, and industrial uses, and is among the
first companies to introduce robotic technology into the consumer market. Home care robots are iRobot’s most successful products, with over 5 million units sold worldwide, accounting for over half of its total annual revenue. iRobot also had a long-standing con-tractual relationship with the U.S. government to produce robots for military defense.
The company is fully gauged toward first-mover radical innovation with an exten-sive R&D budget. Made up of over 500 of the most distinguished robotics professionals
in the world, it aims at leading the robotics industry. By forming alliances with com-panies like Boeing and Advanced Scientific Concepts, it is able to develop and improve
upon products that it otherwise is incapable of obtaining solely through its own technology. The company also has a healthy financial position with an excellent cash and long-term debt rate.
Despite these competencies, iRobot still has serious concerns. Although the robotics industry is not highly competitive, iRobot needs more competition to help build up the total scale and visibility of the fledgling industry it has pioneered. Home care robots, its biggest revenue source, is a luxury supplemental good. Times of economic recession, however, could prove to be a problem for the sales of iRobot’s consumer goods, given that discretionary bud-gets are likely decreased. In addition, iRobot had over 70 patents, many of which will begin to expire in 2019. In a rapidly advancing industry, technology can also become obsolete quickly
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C A S E 25iRobot:Finding the Right MaRket Mix?Alan N. HoffmanBentley University
This case was prepared by Professor Alan N. Hoffman, Bentley University and Erasmus University. Copyright © 2010 by Alan N. Hoffman. The copyright holder is solely responsible for case content. Reprint permission is solely granted to the publisher, Prentice Hall, for Strategic Management and Business Policy, 13th Edition (and the interna-tional and electronic versions of this book) by the copyright holder, Alan N. Hoffman. Any other publication of the case (translation, any form of electronics or other media) or sale (any form of partnership) to another publisher will be in violation of copyright law, unless Alan N. Hoffman has granted an additional written permission. Reprinted by per-mission. The author would like to thank MBA students Jeremy Elias, Ryan Herrick, Steven Iem, Jaspreet Khambay, and Marina Smirnova at Bentley University for their research. RSM Case Development Centre prepared this case to provide material for class discussion rather than to illustrate either effective or ineffective handling of a management situation. Copyright © 2010, RSM Case Development Centre, Erasmus University. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner, Alan N. Hoffman.
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and render patents useless. Additionally, iRobot is highly dependent on several third-party suppliers to manufacture its consumer products. It also depends on the U.S. government for the sales of its military products. Any volatility in its supply chain or in government fiscal policy will have grave consequences upon the company’s future.
Company HistoryIn the late 1980s, the coolest robots in the world were being developed at the MIT Artificial Intelligence Lab. These robots, modeled on insects, captured the imagination of researchers, explorers, military, and dreamers alike. iRobot cofounders, MIT professor Rodney Brooks and graduates Colin Angle and Helen Greiner, saw this technology as the basis for a whole new class of robots that could make people’s lives easier and more fun. In 1990, iRobot was incorporated in the state of Delaware.1
After leaving the MIT extraterrestrial labs, the three entrepreneurs focused their busi-ness on extraterrestrial exploration, introducing the Genghis for robotic researchers in 1990. In 1998, the founders shifted their focus onto military tactile robots and consumer robots after landing a pivotal contract with the U.S. Defense Advanced Research Project Agency (DARPA). This contract provided funding for the necessary R&D to develop new technolo-gies. As a direct result, iRobot delivered the PacBot to the government in 2001 to assist in the search at the NYC World Trade Center. In 2010, thousands of PacBots were serving the country on the war front.
In 2002, iRobot began selling its first practical and affordable home robot, the Roomba vacuuming robot. With millions of Roomba vacuums sold, iRobot has continued to develop and unveil new consumer robots such as a robotic gutter cleaner and a pool vacuum. In 2005, iRobot raised US$120 million in its IPO and began trading on the NASDAQ stock exchange.
iRobot’s Products and DistributioniRobot designs and builds robots for consumer, government, and industrial use, as shown in Exhibit 1. On the consumer robots front, the company offers floor cleaning robots, pool cleaning robots, gutter cleaning robots, and programmable robots. iRobot sells its home robots through a network of over 30 national retailers. Internationally, iRobot relies on a network of in-country distributors to sell these products to retail stores in their respective countries. iRobot also sells its products through its own online store and other online stores like Amazon and Wal-Mart.
Home robots have been the company’s most successful products, with over 5 million units sold worldwide. Sales of home robots accounted for 55.5% and 56.4% of iRobot’s total revenue in 2009 and 2008, respectively.2 Currently, iRobot is exploring new tech-nological opportunities, including those that can automatically clean windows, showers, and toilets. The potential to fully clean one’s house using automated robots is appealing to customers.
On the government and industrial robotics front, iRobot offered both ground and mari-time unmanned vehicles, selling the vehicles directly to end-users or through prime con-tractors and distributors.3 Its government customers included the U.S. Army, U.S. Marine Corp, U.S. Army and Marine Corps Robotic Systems Joint Program office, U.S. Navy EOD Technical Division, U.S. Air Force, and Domestic Police and First Responders. For 2009 and 2008, 36.9% and 40.3% (respectively) of iRobot total revenue came from the U.S. government.
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Consumer Products:
� Roomba floor vacuuming robot: vacuum floors and rugs at the press of a button(US$129–US$549).
� Scooba floor washing robot: preps, washes, scrubs, and dries hard floor surfaces(US$299–US$499).
� Verro pool cleaning robot: cleans a standard size pool in about an hour while removing debrisas small as two microns from the pool floor, walls, and stairs (US$399–US$999).
� Looj gutter cleaning robot: simplifies the difficult and dangerous job of gutter cleaning(US$69–US$129).
� Create programmable robot: a fully assembled programmable robot based on the Roombatechnology that is compatible with Roomba’s rechargeable batteries, remote control, andother accessories (US$129–US$299).
Government and Industrial Products:
� iRobot 510 PackBot (advanced EOD configuration)� iRobot 510 PackBot (FasTac configuration) � iRobot 510 PackBot (First responder configuration)� iRobot 510 PackBot (Engineer configuration)� iRobot 210 Negotiator� 310 SUGV� iRobot 1Ka Seaglider� iRobot 710 Warrior � Daredevil Project� LANdroids Project
ExHibit 1 iRobot Complete
Product Listing
The robot-based products market is an emerging market with high entry barriers because it requires new entrants to have access to advanced technology, as well as large amounts of capital to invest in R&D. As a result, the market has relatively few companies competing with each other.
iRobot competes with large and small companies, government contractors, and government-sponsored laboratories and universities. It also competes with companies producing traditional push vacuum cleaners, such as Dyson and Oreck.
Many of iRobot’s competitors have significantly more financial resources. These in-clude Sweden-based AB Electrolux, German-based Kärcher, South Korea–based Samsung, UK-based QinetiQ, and U.S.-based Lockheed, all of whom compete against iRobot mainly in the robot vacuum cleaning market and the unmanned ground vehicle market. The iRobot product (for example, its Roomba vacuum robot) is not the most expensive product, but is rated the highest across the majority of comparison points.
AB ElectroluxFounded in 1910, Electrolux is headquartered in Stockholm, Sweden. It does business in 150 countries with sales of 109 billion SEK (US$15 billion), and is engaged in the manu-facture and sales of household and professional appliances. Its Electrolux Trilobite vac-uum cleaner competed with the iRobot’s Roomba vacuum cleaner in international markets. Although Electrolux Trilobite is currently unavailable in the United States, it will likely soon
Competition
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be sold on the company’s website. An Electrolux Trilobite is priced at about US$1800, much more than a Roomba, which retails for between US$200 and US$500.
Alfred Kärcher GmbH & Co.Founded in 1935, Kärcher is a German manufacturer of cleaning systems and equipment, and is known for its high-pressure cleaners. Kärcher does business worldwide, with sales of €1.3 billion (US$1.7 billion). In 2003, it launched Kärcher RC 3000, the world’s first autonomous cleaning system, which competes with the iRobot Roomba vacuum cleaner in international markets. Kärcher RC 3000 is not currently sold in the United States but can be purchased and shipped directly from Germany for approximately US$1500.
Samsung Electronics Co., LtdFounded in 1969, Samsung is headquartered in South Korea. It is the world’s largest electron-ics company, with a revenue of US$117.4 billion in 2009. It is a prominent player in the world market for more than 60 products, including home appliances such as washing machines, refrigerators, ovens, and vacuum cleaners. In November 2009, Samsung launched Tango, its autonomous vacuum cleaner robot, which is available in South Korea. In March 2010, the company premiered the Samsung NaviBot, an autonomous vacuum cleaner, in Europe. It was priced at €400 to €600 (US$516 to US$774).
QinetiQFounded in 2001, QinetiQ is a defense technology company headquartered in the UK with revenues of £1.6 billion (US$2.4 billion). It produces aircraft, unmanned aerial vehicles, and energy products. iRobot’s stiffest competitor in the unmanned aerial vehicles market is QinetiQ, which has 2500 Talon robots deployed in Iraq and Afghanistan. iRobot had delivered more than 3000 PackBot robots worldwide.
Lockheed Martin CorporationBased in Maryland, the U.S.-based Lockheed is the world’s second-largest defense contractor by revenue and employs 140,000 people worldwide. It was formed by the merger of Lockheed and Martin Marietta in 1995, and competed with iRobot in the unmanned ground vehicle market.
Research and Development at iRobotResearch and development (R&D) is a critical part of iRobot’s success. The company spends nearly 6% of its revenue on R&D. In 2009, its total R&D costs were US$45.5 million, of which US$14.7 million was internally funded, while the remaining amount was funded by government-sponsored research and development contracts. iRobot believes that by utilizing R&D capital it will be able to respond and stay ahead of customer needs by bringing new, innovative products to the market. As of 2009, iRobot had 538 full-time employees, 254 of which were in R&D.4
The company’s core technology areas are collaborative systems, semi-autonomous opera-tions, advanced platforms, and human-robot interaction. Each area provides a unique benefit to the development and advancement of robot technology. Research in these fields is done using three different methods: team organization, spiral development, and the leveraged model.
Team organization revolves around small teams that focus on certain specific projects or robots. They work together with all the different lines of the business to ensure that a product is well integrated. Primary locations for these teams are Bedford, Massachusetts; Durham, North Carolina; and San Luis Obispo, California.
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Spiral development is used for military products. Newly created products are sent into the field and tested by soldiers with an in-field engineer nearby to receive feedback from the soldiers on the product’s performance. Updates and improvements are made in a timely man-ner, and the product is sent back to the field for retesting. This method of in-field testing has allowed iRobot to quickly improve its technology and design so it can truly fulfill the needs of its end-users.
The leveraged model uses other organizations for funding, research, and product devel-opment. iRobot’s next generation of military products are supported by various U.S. govern-ment organizations. Although the government has certain rights to these products, iRobot does “retain ownership of patents and know-how and are generally free to develop other commer-cial products, including consumer and industrial products, utilizing the technologies devel-oped during these projects.”5 The same methodology holds true when designing consumer products. If expertise is developed that will assist in governmental projects, it is transferred to the appropriate team.
iRobot’s continued success depends on its proprietary technology, the intellectual skills of its employees, and its ability to innovate. The company holds at least 71 U.S. patents, 150 pending U.S. patents, 34 international patents, and more than 108 pending foreign appli-cations. The patents held, however, will start to expire in 2019.
Sales, Net Income, and Gross MarginsFrom 2005 through 2009, iRobot’s total revenue more than doubled, from US$142 million to US$299 million. Revenues received from products accounted for nearly 88% of total revenue, far greater than the remaining 12% received from contract revenue, though contract revenue showed a record high of US$36 million by the end of 2009. (See Exhibit 2).
Revenues from 2009 showed a decline of US$9 million from 2008 that was mainly attributable to a 6.3% decrease in home robots shipped. This decrease resulted from softening demand in the domestic market. On a more positive note, the total US$30.9 million decrease in domestic sales was partially offset by an increase in international sales (US$23.2 million). Even though revenues declined in 2009, iRobot was able to control its costs and operating expenses, resulting in an increase in net income of over four-fold, from US$756,000 in 2008 to US$3.3 million in 2009.
Cash and Long-Term DebtiRobot is in a strong financial position regarding cash and long-term debt. In 2009, iRobot increased its cash position by over US$31 million while decreasing the amount of long-term debt by about US$400,000. Its cash position by the end of 2009 was US$72 million versus US$41 million in 2010, an increase of over 77%. This put iRobot in a good position to con-tinue investing in research and development even if sales began to slow. At the end of 2009, iRobot’s long-term debt was just over US$4 million (see Exhibit 3). iRobot’s financial status gives it a competitive edge, as it should be able to withstand both current and future unfore-seen swings in sales, supplier issues, and the cancellation of government contracts.
Financial Results
iRobot’s promotion strategies vary by product group, but neither its defense product group nor its home care product group utilize television or radio advertising. Since defense products are produced solely for the U.S. government, promotion is unnecessary. Home care products, on
Marketing
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ExHibit 2Consolidated Statement of Operations: iRobot Corporation (Dollar amounts in thousands)
Year EndingJanuary 2,
2010December 27,
2008December 29,
2007December 30,
2006December 31,
2005
RevenueProduct revenue $262,199 $281,187 $227,457 $167,687 $124,616Contract revenue 36,418 26,434 21,624 21,268 17,352
Total revenue 298,617 307,621 249,081 188,955 141,968Cost of revenue
Cost of product revenue 176,631 190,250 147,689 103,651 81,855Cost of contract revenue 30,790 23,900 18,805 15,569 12,534
Total cost of revenue 207,421 214,150 166,494 119,220 94,389Gross margin 91,196 93,471 82,587 69,735 47,579Operating expenses
Research and development 14,747 17,566 17,082 17,025 11,601Selling and marketing 40,902 46,866 44,894 33,969 21,796General and administrative 30,110 28,840 20,919 18,703 12,072Litigation and related
expenses — — 2,341 — —Total operating expenses 85,759 93,272 85,236 69,697 45,469
Operating (loss) income 5,437 199 (2,649) 38 2,110Net income $3,330 $756 $9,060 $3,565 $2,610 Net income attributable to
common stockholders $3,330 $756 $9,060 $3,565 $1,553 Net income per common share
Basic $0.13 $0.03 $0.37 $0.15 $0.13 Diluted $0.13 $0.03 $0.36 $0.14 $0.11
Shares used in per common share calculations
Basic 24,998 24,654 24,229 23,516 12,007Diluted 25,640 25,533 25,501 25,601 14,331
the other hand, need to be marketed to generate public demand. iRobot aggressively utilizes social media tools such as Facebook and Twitter primarily for promoting support services and brand recognition. For example, Facebook had at least 10 fan pages for either iRobot Corpora-tion or selected iRobot home cleaning products like Roomba.
Another branding strategy used by iRobot education concerns how the company recognized that fewer and fewer American children go into STEM (science, technology, engineering, math) areas. Because of this, it launched the SPARK (Starter Programs for the Advancement of Robotics Knowledge) program to stimulate an interest in science and tech-nology. The program caters to students ranging from elementary school to the university level. iRobot also initiated an annual National Robotics Week program to educate the public on how robotics technology impacts society. The first national robotics week was held in April 2010 in the Museum of Science in Boston.
iRobot developed an education and research robot, the Create(R) programmable mobile ro-bot, to provide educators, students, and developers with an affordable, preassembled platform for hands-on programming and development. Students can learn the fundamentals of robotics, com-puter science, and engineering; program behaviors, sounds, and movements; and attach accessories like sensors, cameras, and grippers. It also runs a unique and multifaceted Educational Outreach Program that includes classroom visits and tours of its company headquarters. This is all designed to inspire students to choose careers in the robotics industry and become future roboticists.
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ExHibit 3Consolidated Balance Sheet: iRobot Corporation (Dollar amount in thousands)
Year Ending January 2, 2010 December 27, 2008
AssetsCurrent assets
Cash and cash equivalents $71,856 $40,852 Short-term investments 4,959 —Accounts receivable, net of allowance of $90 and $65 at January 2,
2010, and December 27, 2008, respectively35,171 35,930
Unbilled revenue 1,831 2,014Inventory 32,406 34,560Deferred tax assets 8,669 7,299Other current assets 4,119 3,340
Total current assets 159,011 123,995Property and equipment, net 20,230 22,929Deferred tax assets 6,089 4,508Other assets 14,254 12,246
Total assets $199,584 $163,678
Current liabilitiesAccounts payable $30,559 $19,544 Accrued expenses 14,384 10,989Accrued compensation 13,525 6,393Deferred revenue and customer advances 3,908 2,632
Total current liabilities 62,376 39,558Long-term liabilities 4,014 4,444Commitments and contingencies:Redeemable convertible preferred stock, 5,000,000 shares authorized
zero outstanding — —Common stock, $0.01 par value, 100,000,000 and 100,000,000
shares authorized and 25,091,619 and 24,810,736 shares issued and outstanding at January 2, 2010, and December 27, 2008, respectively 251 248
Additional paid-in capital 140,613 130,637Deferred compensation (64) (314)Accumulated deficit (7,565) (10,895)Accumulated other comprehensive loss (41) —
Total stockholders’ equity 133,194 119,676Total liabilities, redeemable convertible preferred stock,
and stockholders’ equity $199,584 $163,678
Liabilities, redeemable convertible preferred stock, and stockholders’equity
Despite multiple methods of reaching out to current and potential consumers, some industry analysts claim iRobot lacks aggressiveness toward customer acquisition. Many observers believe that iRobot will benefit from more competition to help build industry vis-ibility among consumers.
iRobot is not a manufacturing company, nor has it ever claimed to be. Its core competency is to design, develop, and market robots, not manufacture them. All non-core activities are outsourced to third parties skilled in manufacturing. While third-party manufacturers provide the raw materials and labor, iRobot concentrates on developing and optimizing prototypes.
Operations
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Up until April 2010, iRobot used only two third-party manufacturers for its consumer products: Jetta Co. Ltd. and Kin Yat Industrial Co. Ltd., both located in China. iRobot did not have a long-term contract with either company, and the manufacturing was done on a purchase-order basis. This changed in April 2010, when iRobot entered a multi-year manufac-turing agreement with electronic parts maker Jabil Circuit Inc., which henceforth would make, test, and supply iRobot’s consumer products, including the Roomba.6
Robots serve a wide variety of industries, such as the consumer, automotive, military, construction, agricultural, space, renewable energy, medical, law enforcement, utilities, manu-facturing, entertainment, mining, transportation, space, and warehouse industries.
In 2008, before the economic downturn, the global market for industry robot systems was estimated to be about 110,000 units.7 Industrial robot sales worldwide in 2009 slumped by about 50% compared to 2008. The sales started to improve from the third quarter of 2009 onward, with the slow recovery coming from emerging markets in Asia and especially from China. In North America and Europe, sales were also seen slowly improving from late 2009.8
The sales of professional services robots, including military and defense robots, were about US$11 billion at the end of 2008 and were expected to grow by US$10 billion for the period of 2009 to 2012.9
Twelve million units of household and entertainment robots were expected to be sold from 2009 to 2012 in the mass market, with an estimated value of US$3 billion.10
The Robotic Industry
New MarketsThe 2009 economic recession had negative impacts on consumer spending. iRobot domestic sales of robot vacuum cleaners, predominantly the Roomba, were down comparable to other US$400 discretionary purchases, and its international sales also experienced a slowdown.11 In addition to lower consumer demand, the national and international credit crunches led to a scarcity of credit, tighter lending standards, and higher interest rates on consumer and busi-ness loans. Continued disruptions in credit markets may limit consumer credit availability and impact home robot sales.
If the robot market does not experience significant growth, the entire industry may not survive. “Fallout has forced the robotics industry to look outside of its comfort zone and move into emerging energy technologies like batteries, wind, and solar power,” said Roger Chris-tian, Vice President of Marketing and International Groups at Motoman Inc. He also predicted growing demand for robotics in health care and the food and beverage industry.12 Under the Obama administration, there were economic incentives devoted to R&D in alternative energy industries. For example, “the Stimulus Act passed by Congress in early 2009, a US$787 billion package of tax cuts, state aid, and government contracts, has made some impact on the alterna-tive energy market in favor of robotics.”13
In addition to its home care and military markets, iRobot hoped to expand into the civil law enforcement market and the maritime market. It also explored possibilities in the health care market.14 It partnered with the toy company Hasbro to enter the toy market with My Real Baby—an evolutionary doll that has animatronics and emotional response software.
iRobot continued to grow its international presence by entering new markets. The per-centage of its international sales rose from 38% in 2008 to 53.8% in 2009.15 Its growing focus on international sales resulted in an increase of US$23.2 million in international home robots revenue for 2009 compared to 2008. iRobot also sold its military products overseas in compli-ance with the International Traffic in Arms Regulations.
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Consumer MarketplaceiRobot was competing in a new and emerging market. Although the industry had relatively low competition, analysts believed iRobot needed “more competition, not less, to help build up the total scale and visibility of the fledgling industry it had been pioneering.”16 If the demand for the home robots became stagnant or declined, this would greatly impact the vital-ity of iRobot and put it under pressure to remain innovative and adaptive to consumer needs in the event that it did gain widespread popularity.
iRobot’s consumer products were primarily a luxury supplemental good gauged toward the middle and upper class. iRobot’s home cleaning robots were reasonably priced from US$129 to US$1000, depending on the model and accessories. Such a price range was com-parable with luxury brands of vacuum machines. However, times of economic recession could prove to be a problem for iRobot’s consumer goods sales given that discretionary budgets have contracted. To save money, iRobot’s base customers may revert to manual labor.
Supply ChainFor many years, iRobot had only two China-based manufacturers to produce its home clean-ing robots and no long-term contract with either of those companies. Its best-selling Roomba 400 series and Scooba series, for example, were both produced by Jetta at a single plant in China. This put iRobot in a high-risk situation if Jetta was unable to deliver products for any unforeseen reason, or if quality started to dip below standards.
Fortunately, iRobot was aware of the problem and signed a new manufacturing agree-ment with U.S.-based Jabil Circuit. This relationship provided iRobot with numerous benefits, including diversifying key elements of its supply chain, providing geographic flexibility to address new markets, and expanding overall capacity to meet growing demands, explained Jeffrey Beck, president of iRobot’s Home Robots Division. Whether this attempt to diversify its supply chain with a new partnership will work out is of crucial importance for iRobot.
Intellectual PropertyContinued development of products that are difficult to duplicate through reverse engineering will be the key to success in the area of intellectual property. By maintaining strong rela-tionships and giving superior service to customers such as government agencies, iRobot can create an advantage even if they are unable to ultimately protect their technology from being duplicated. At the same time, iRobot also needs to ensure that its employees will continue to be innovative and create new technologies to keep iRobot competitive for years to come.
Government ContractsNearly 40% of iRobot’s revenues are from government-contracted military robots. As a con-tractor or a subcontractor to the U.S. government, iRobot is subject to federal regulations. Fiscal policy and expenditure can be volatile, not only through a single presidency, but certainly during the transition from one presidency to the next. The volatility and unknown demand of the U.S. government presents a problem. The economic fallout from the reces-sion also impacted U.S. federal budgetary considerations. Emphasis and focus was placed on larger, more troubled industries, with large bailout packages made available to financial and automotive companies. It remains to be seen how these large outlays will affect the federal government’s ability to continue to fund contracts for robotics.
Strategic AlliancesiRobot relied on strategic alliances to provide technology, complementary product offerings, and better and quicker access to markets. It entered an agreement with The Boeing Company
Challenges Ahead
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to develop and market a commercial version of the SUGV that was being developed under the Army’s BCTM (formerly FCS) program. It also formed an alliance with Advanced Scientific Concepts Inc. for exclusive rights to use the latter’s LADAR technology of unmanned ground vehicles. In exchange, iRobot commited itself to purchase units from Advanced Scientific Concepts.
iRobot’s ChallengeiRobot’s focus on home cleaning products differentiates it from all the other manufacturers in the robotics industry, which are mainly focused on manufacturing robots for the automotive sector. iRobot’s focus on two entirely different markets—consumer and military—allows it (1) the ability to leverage its core capabilities and diversification, and (2) provides it with a hedge against slower demand in one sector. By introducing robotics to the consumer market, iRobot has created a “blue ocean of new opportunities.” However, iRobot had numerous com-petitors with more experience in the consumer marketplace.
An analyst wondered if the long-term success in the consumer market would require iRobot to develop more “blue oceans.” Also, did it make sense for iRobot to continue to develop new consumer products or would it be better off focusing on the military and aero-space marketplace?
N o t e s 1. http://investor.irobot.com/phoenix.zhtml?c=193096&p=irol-
faq_pf 2. iRobot 2009 Annual Report, Form 10K, filed February 19, 2010. 3. Ibid. 4. iRobot 2009 Annual Report, 2010. 5. Ibid. 6. “iRobot Enters Manufacturing Deal with Jabil,” The Lowell
Sun, (April 28, 2010). http://www.lowellsun.com/latestnews/ci_14830219.
7. http://www.ifr.org/industrial-robots/statistics/ 8. Gudrun Litzenberger, IFR Statistical Department, “The Robotics
Industry Is Looking Ahead with Confidence to 2010,” http://www .emeraldinsight.com/journals.htm?issn=0143-991X&volume= 37&issue=5&articleid=1876691&show=html
9. Ibid. 10. Ibid. 11. M. Raskino, (a), 2010, “Insights on a Future Growth Industry.”
An interview with Colin Angle, CEO, iRobot. http://my.gartner .com/portal/server.pt?open=512&objID=260&mode=2&PageID =3460702&resId=1275816&ref=QuickSearch&sthkw=irobot.
12. B. Brumson, 2010, “Robotics Market Cautiously Optimis-tic for 2010.” Robotic Industries Association. http://www .robotics.org/content-detail.cfm/Industrial-Robotics-Feature-Article/Robotics-Market-Cautiously-Optimistic-for-2010/content_id/1936.
13. Ibid. 14. Robotreviews, 2010, “iRobot Celebrates Two Decades of
Innovation in Robotics,” http://www.robotreviews.com/news/its-national-robotics-week.
15. iRobot 2009 Annual Report, 2010. 16. M. Raskino, (b), 2010, Cool Vendors in Emerging Technolo-
gies,” 2010. http://my.gartner.com/portal/server.pt?open=512& objID=260&mode=2&PageID=3460702&resId=133843&ref=QuickSearch&sthkw-irobot.
Z25_WHEE0811_14_GE_CA25.indd 670 5/20/14 12:03 PM

Cover
Brief Contents
Contents
Preface
About the Authors
Part One: Introduction to Strategic Management and Business Policy

Chapter 1: Basic Concepts of Strategic Management

The Study of Strategic Management

Phases of Strategic Management
Benefits of Strategic Management

Globalization, Innovation, and Sustainability: Challenges to Strategic Management

Impact of Globalization
Impact of Innovation
Global Issue: Regional Trade Associations Replace National Trade Barriers
Impact of Sustainability

Theories of Organizational Adaptation
Creating a Learning Organization
Basic Model of Strategic Management

Environmental Scanning
Strategy Formulation
Strategy Implementation
Evaluation and Control
Feedback/Learning Process

Initiation of Strategy: Triggering Events
Strategic Decision Making

What Makes a Decision Strategic
Mintzberg’s Modes of Strategic Decision Making
Strategic Decision-Making Process: Aid to Better Decisions

The Strategic Audit: Aid to Strategic Decision Making
End of Chapter Summary
Appendix 1.A: Strategic Audit of a Corporation

Chapter 2: Corporate Governance

Role of the Board of Directors

Responsibilities of the Board
Members of a Board of Directors
Innovation Issue: JCPenney and Innovation
Strategy Highlight: Agency Theory Versus Stewardship Theory in Corporate Governance
Nomination and Election of Board Members
Organization of the Board
Impact of the Sarbanes-Oxley Act on U.S. Corporate Governance
Global Issue: Global Business Board Activism At Yahoo!
Trends in Corporate Governance

The Role of Top Management

Responsibilities of Top Management
Sustainability Issue: CEO Pay and Corporate Performance

End of Chapter Summary

Chapter 3: Social Responsibility and Ethics in Strategic Management

Social Responsibilities of Strategic Decision Makers

Responsibilities of a Business Firm
Sustainability
Corporate Stakeholders
Sustainability Issue: Marks & Spencer Leads the Way
Strategy Highlight: Johnson & Johnson Credo

Ethical Decision Making

Some Reasons for Unethical Behavior
Global Issue: How Rule-Based and Relationship-Based Governance Systems Affect Ethical Behavior
Innovation Issue: Turning a Need into a Business to Solve the Need
Encouraging Ethical Behavior

End of Chapter Summary

Part Two: Scanning the Environment

Chapter 4: Environmental Scanning and Industry Analysis

Environmental Scanning

Identifying External Environmental Variables
Sustainability Issue: Green Supercars
Global Issue: SUVs Power on in China
Identifying External Strategic Factors

Industry Analysis: Analyzing the Task Environment

Porter’s Approach to Industry Analysis
Industry Evolution
Innovation Issue: Taking Stock of an Obsession
Categorizing International Industries
International Risk Assessment
Strategic Groups
Strategic Types
Hypercompetition
Using Key Success Factors to Create an Industry Matrix

Competitive Intelligence

Sources of Competitive Intelligence
Strategy Highlight: Evaluating Competitive Intelligence
Monitoring Competitors for Strategic Planning

Forecasting

Danger of Assumptions
Useful Forecasting Techniques

The Strategic Audit: A Checklist for Environmental Scanning
Synthesis of External Factors—EFAS
End of Chapter Summary

Chapter 5: Internal Scanning: Organizational Analysis

A Resource-Based Approach to Organizational Analysis

Core and Distinctive Competencies
Using Resources to Gain Competitive Advantage
Determining the Sustainability of an Advantage

Business Models
Value-Chain Analysis

Industry Value-Chain Analysis
Corporate Value-Chain Analysis

Scanning Functional Resources and Capabilities

Basic Organizational Structures
Corporate Culture: The Company Way
Global Issue: Managing Corporate Culture for Global Competitive Advantage: ABB vs. Panasonic
Strategic Marketing Issues
Innovation Issue: DoCoMo Moves against the Grain
Strategic Financial Issues
Strategic Research and Development (R&D) Issues
Strategic Operations Issues
Strategic Human Resource (HRM) Issues
Sustainability Issue: The Olympic Games-Sochi 2014 and Rio 2016
Strategic Information Systems/Technology Issues

The Strategic Audit: A Checklist for Organizational Analysis
Synthesis of Internal Factors
End of Chapter Summary

Part Three: Strategy Formulation

Chapter 6: Strategy Formulation: Situation Analysis and Business Strategy

Situational Analysis: SWOT Approach

Generating a Strategic Factors Analysis Summary (SFAS) Matrix
Finding a Propitious Niche

Review of Mission and Objectives
Business Strategies

Porter’s Competitive Strategies
Global Issue: The Nike Shoe Strategy vs. The New Balance Shoe Strategy
Innovation Issue: CHEGG and College Textbooks
Cooperative Strategies
Sustainability Issue: Strategic Sustainability-Espn

End of Chapter Summary

Chapter 7: Strategy Formulation: Corporate Strategy

Corporate Strategy
Directional Strategy

Growth Strategies
Strategy Highlight: Transaction Cost Economics Analyzes Vertical Growth Strategy
International Entry Options for Horizontal Growth
Global Issue: Global Expansion is not Always A Path to Expansion
Controversies in Directional Growth Strategies
Stability Strategies
Retrenchment Strategies

Portfolio Analysis

BCG Growth-Share Matrix
Sustainability Issue: General Motors and The Electric Car
Advantages and Limitations of Portfolio Analysis
Managing a Strategic Alliance Portfolio

Corporate Parenting

Innovation Issue: To Red Hat or Not?
Developing a Corporate Parenting Strategy
Horizontal Strategy and Multipoint Competition

End of Chapter Summary

Chapter 8: Strategy Formulation: Functional Strategy and Strategic Choice

Functional Strategy

Marketing Strategy
Financial Strategy
Research and Development (R&D) Strategy
Operations Strategy
Global Issue: Why doesn’t Starbucks want to Expand to Italy?
Purchasing Strategy
Sustainability Issue: How Hot is Hot?
Logistics Strategy
Innovation Issue: When an Innovation Fails to Live Up to Expectations
Human Resource Management (HRM) Strategy
Information Technology Strategy

The Sourcing Decision: Location of Functions
Strategies to Avoid
Strategic Choice: Selecting the Best Strategy

Constructing Corporate Scenarios
The Process of Strategic Choice

Developing Policies
End of Chapter Summary

Part Four: Strategy Implementation and Control

Chapter 9: Strategy Implementation: Organizing for Action

Strategy Implementation
Who Implements Strategy?
What Must Be Done?

Developing Programs, Budgets, and Procedures
Sustainability Issue: A Better Bottle-Ecologic Brands
Achieving Synergy

How is Strategy to Be Implemented? Organizing for Action

Structure Follows Strategy
Stages of Corporate Development
Innovation Issues: The P&G Innovation Machine Stumbles
Organizational Life Cycle
Advanced Types of Organizational Structures
Reengineering and Strategy Implementation
Six Sigma
Designing Jobs to Implement Strategy

International Issues in Strategy Implementation

International Strategic Alliances
Stages of International Development
Global Issue: Outsourcing Comes Full Circle
Centralization Versus Decentralization

End of Chapter Summary

Chapter 10: Strategy Implementation: Staffing and Directing

Staffing

Staffing Follows Strategy
Selection and Management Development
Innovation Issue: How to Keep Apple “Cool”
Problems in Retrenchment
International Issues in Staffing

Leading

Sustainability Issue: Panera and The “Panera Cares Community Cafe”
Managing Corporate Culture
Action Planning
Management by Objectives
Total Quality Management
International Considerations in Leading
Global Issue: Cultural Differences Create Implementation Problems in Merger

End of Chapter Summary

Chapter 11: Evaluation and Control

Evaluation and Control in Strategic Management
Measuring Performance

Appropriate Measures
Types of Controls
Innovation Issue: Reuse of Electric Vehicle Batteries
Activity-Based Costing
Enterprise Risk Management
Primary Measures of Corporate Performance
Balanced Scorecard Approach: Using Key Performance Measures
Sustainability Issue: E-Receipts
Primary Measures of Divisional and Functional Performance
Responsibility Centers
Using Benchmarking to Evaluate Performance
International Measurement Issues
Global Issue: Counterfeit Goods and Pirated Software: A Global Problem

Strategic Information Systems

Enterprise Resource Planning (ERP)
Radio Frequency Identification (RFID)
Divisional and Functional is Support

Problems in Measuring Performance

Short-Term Orientation
Goal Displacement

Guidelines for Proper Control
Strategic Incentive Management
End of Chapter Summary

Part Five: Introduction to Case Analysis

Chapter 12: Suggestions for Case Analysis

The Case Method
Researching the Case Situation
Financial Analysis: A Place to Begin

Analyzing Financial Statements
Common-Size Statements
Z-Value and the Index of Sustainable Growth
Useful Economic Measures

Format for Case Analysis: The Strategic Audit
End of Chapter Summary
Appendix 12.A: Resources for Case Research
Appendix 12.B: Suggested Case Analysis Methodology Using the Strategic Audit
Appendix 12.C: Example of Student-Written Strategic Audit

Part Six: Cases in Strategic Management

Section A: Corporate Governance: Executive Leadership

Case 1: The Recalcitrant Director at Byte Products, Inc.: Corporate Legality versus Corporate Responsibility

Several Solutions
The Solution!
Taking the Plan to the Board
The Dilemma

Case 2: The Wallace Group

Background on The Wallace Group
History of the Wallace Group
Organization and Personnel
Current Trends
The Problem Confronting Frances Rampar

Section B: Business Ethics

Case 3: Everyone Does It

The Industry
Financing a Satellite Program
The Current Problem

Case 4: The Audit

Section C: Corporate Social Responsibility

Case 5: Early Warning or False Sense of Security? Concussion Risk and the Case of the Impact-Sensing Football Chinstrap

Battle Sports Science, LLC
Football and the Concussion Problem
Product Responsibility and the Impact Indicator

Section D: International Issues in Strategic Management

Case 6: A123 Systems: A New Lithium-Ion Battery System for Electric and Hybrid Cars

Company Background
Strategic Direction
A123’s Competitors
Government Programs
Social and Demographic Trends
A123’s Technology
Global Opportunities and Threats
A123’s Finances
Areas of Concern for A123
Marketing
Research and Development
Operations
Challenges Facing A123 Systems

Case 7: Guajilote Cooperativo Forestal, Honduras

Operations
Management and Human Resources
Munguia: El Caudillo
Guajilote’s Members
Financial Situation
Issues Facing the Cooperative
A Possibility
Concerns

Section E: General Issues in Strategic Management

Industry One: Internet Companies

Case 8: Google Inc. (2010): The Future of the Internet Search Engine

Background
Management and Board of Directors
Mission
Issues and Risk Factors Facing Google in 2010
Google’s Future

Case 9: Amazon.com, Inc.: Retailing Giant to High-Tech Player?

Overview
Amazon Corporate Governance
Retail Operations/Amazon’s Superior Website
Diversified Product Offerings
Partnerships
Web Services
Amazon’s Acquisition of Zappos, Quidsi, Living Social, and Lovefilm
Competitors
Frustration-Free Packaging
Financial Operations
Challenges for Amazon

Case 10: Blue Nile, Inc.: “Stuck in the Middle” of the Diamond Engagement Ring Market

Company Background
Strategic Direction
The Jewelry Industry
Blue Nile’s Competitors
Barriers to Entry/Imitation
Social and Demographic Trends
Global Opportunities
Blue Nile’s Finances
Marketing
Operations and Logistics
Human Resources and Ethics
Stuck in the Middle

Industry Two—Entertainment and Leisure

Case 11: Groupon Inc.: Daily Deal or Lasting Success?

History
Business Model
Mission and Strategy
Corporate Governance
Operations
Finance
Information Technology
Marketing
Competition
Legal Issues
Looking to the Future

Case 12: Netflix Inc.: The 2011 Rebranding/Price Increase Debacle

Online Streaming
Demographics
Netflix’s Competitors
Rising Content Costs
Global Expansion
Financial Results
Netflix’s Success
The 2011 Price Increase/Rebranding Debacle
Strategic Challenges Ahead for Netflix

Case 13: Carnival Corporation & plc

Overview
The Evolution of Cruising
Carnival History
Industry Projections
Carnival in the Future

Case 14: Zynga, Inc. (2011): Whose Turn is It?

Introduction
History
Mission, Strategy, and Business Model
Corporate Governance
The Zynga Way
Turning Games to Revenue
Partnerships
Acquisitions
Operations
Marketing
The Legal Landscape
Corporate Philanthropy
Finance
Future Outlook

Industry Three—Food and Beverage

Case 15: The Boston Beer Company: Brewers of Samuel Adams Boston Lager (Mini Case)

Company History
Corporate Mission and Vision
The Beer Industry
Current Challenges

Case 16: Panera Bread Company (2010): Still Rising Fortunes?

History
Concept and Strategy
The Fast Casual Segment
Competition
Corporate Governance
Menu
Site Selection and Company-Owned Bakery-Cafés
Franchises
Bakery Supply Chain
Marketing
Management Information Systems
Human Resources
Finance

Case 17: Whole Foods Market (2010): How to Grow in an Increasingly Competitive Market? (Mini Case)

Company Background
Whole Foods Market’s Philosophy
Employee and Customer Relations
Competitive Environment
A Different Shopping Experience
The Green Movement
The Economic Recession of 2008
Organic Foods as a Commodity
Struggling to Grow in an Increasingly Competitive Market

Case 18: Burger King (Mini Case)

Business Model
Industry
Issues
New Owners: Time for a Strategic Change?

Case 19: Church & Dwight: Time to Rethink the Portfolio?

Background
Management
Changing Directions
Consumer Products
Specialty Products
International Operations
Streamlining

Industry Four: Apparel

Case 20: Under Armour

Industry Background
Competitors
Under Armour’s History
Under Armour’s Activities
The Pursuit of Three Percent

Case 21: TOMS Shoes (Mini Case)

History
Business Model
Marketing and Distribution
Operations and Management
Mission Accomplished: Next Steps?

Case 22: Best Buy Co. Inc. (2009): A Sustainable Customer-Centricity Model?

Company History
Industry Environment
Internal Environment
Competition
Core Competencies
Challenges Ahead

Industry Five: Specialty Retailing

Case 23: Rosetta Stone Inc.: Changing the Way People Learn Languages

Introduction
History
Products and Services
Content and Curriculum
Technology
Manufacturing and Fulfillment
Language-Learning Success
Marketing, Sales, and Distribution
Protecting Rosetta Stone
The Language-Learning Industry
Competitors
Financial Analysis

Case 24: Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case)

Expansion Plan
Industry
Corporate Ownership
The Dollar General Store and Merchandise
Finance

Case 25: iRobot: Finding the Right Market Mix?

Company History
Research and Development at iRobot
New Markets

Section F

Industry Six: Transportation

Case 26: Tesla Motors, Inc.: The First U.S. Car Company IPO Since 1956

Company Background
Strategic Direction
Tesla’s Competition
Barriers to Entry and Imitation
Proprietary Technology
External Opportunities and Threats
Oil Price
Finances
Marketing
Operations
Human Resources
Tesla’s Future: Success or Bust?

Case 27: Delta Air Lines (2012): Navigating an Uncertain Environment

Delta Becomes the World’s Second-Largest Airline
The Airline Industry
Challenges Facing Delta

Case 28: TomTom: New Competition Everywhere!

TomTom’s Products
Company History
TomTom’s Customers
Mergers and Acquisitions
TomTom’s Resources and Capabilities
Traditional Competition
New Competition Everywhere!
Potential Adverse Legislation and Restrictions
Internal Environment
Marketing
Operations
Human Resources
Issues of Concern for TomTom

Section G

Industry Seven: Manufacturing

Case 29: General Electric, GE Capital, and the Financial Crisis of 2008: The Best of the Worst in the Financial Sector?

Company Background
GE’s Diversified Industrial Products Competitors
GE Capital
GE Capital’s Strategic Direction
GE Capital’s Competitors
Financials
Core Competencies
Challenges Facing GE
What to Do with GE Capital?

Case 30: AB Electrolux: Challenging Times in the Appliance Industry

Product Offerings and Brands
Strategic Direction
Industry Environment
Competition
Sustainability
The 2008–09 Global Recession
The Growing Middle Class in Asia
Technical Advancements
Global Opportunities and Threats
Financials
Operations
Marketing
Innovation
Challenges

Industry Eight: Information Technology

Case 31: Apple Inc.: Performance in a Zero-Sum World Economy

Management’s View of the Company
History of Apple Inc.
Steven P. Jobs: Entrepreneur and Corporate Executive
Business Strategy
Business Organization
Product Support and Services
Markets and Distribution
Competition
Supply of Components
Research and Development
Patents, Trademarks, Copyrights, and Licenses
Seasonal Business
Warranty
Backlog
Environmental Laws
Employees
Legal Proceedings
Software Development Costs
Properties
John Tarpey’s Decision

Case 32: Dell Inc.: Changing the Business Model (Mini Case)

Problems of Early Growth
Business Model
Product Line and Structure
The Industry Matures
Issues and Strategy
Future Prospects

Case 33: Logitech (Mini Case)

Company Background
Competitors
Trends
Global Presence
Finance
Operations
The Changing Landscape Ahead

Case 34: Daktronics (A): The U.S. Digital Signage Industry 2010

The U.S. Digital Signage Industry
Environment of the U.S. Digital Signage Industry in 2010
Competitive Environment
Summary Analysis of Industry Competitiveness in 2010
Looking to the Future

Glossary
Name Index
Subject Index