PricewaterhouseCoopers CASE DISCUSSION BUSINESS CASE Interview Case Study #1 Roane & Hickey, Inc.

You have been recently hired into the Strategic Change (SC) group, a business un it of PricwaterhouseCoopers. SC is the strategy thought leader in PwC. The eng agement partner in Consumer Products has come to SC to help develop a strategy f or Roane & Hickey, Inc. (R&H). This engagement has the potential of positioning PwC to R&H and its parent conglomerate for the next five, possible ten years. Company Background R&H is a wholly-owned subsidiary of a multi-national conglomerate. The conglome rate owns ten companies operating in the U.S. R&H is the largest of the ten. R &H is a consumer goods company distributing well-known branded products through grocery, drug, mass merchant and club channels. With $4 billion in revenues in the U.S., R&H is one of the top three players in the consumer goods industry. T he company has been marginally profitable over the past ten years. Last year th e company made a profit due largely to an accounting change. Although R&H only operates in the U.S., it owns several manufacturing and distri bution facilities around the world to support its production and distribution sy stems. R&H takes advantage of lower labor costs in Mexico, Canada and Southeast Asia to lower its manufacturing costs. R&H still maintains three plants in the U.S. Because of the over-capacity that R&H has experienced, R&H has negotiated deals with sister companies overseas to manufacture and direct-ship product. R&H has four market segments that operate as profit centers. The market segment s are: Personal Hygiene, Consumer Tissue, Soaps and Detergents and Personal Care . Even though the revenues are roughly evenly divided among all four market seg ments, Personal Care contributes 90% of the company's profits. In Personal Care , R&H owns the two top branded products, in the other categories the company has the number two brand, and in one segment, number three. R&H has committed to b uilding a consumer franchise through aggressive advertising and in-store merchan dising support. Industry Trends In the U.S., brands are under attack from private labels, who are now competing on both price and quality. Brands are looking to justify their price premiums. The value of being the number one brand cannot be taken lightly. The return on sales of the top brand is almost twice that of the number two brand. The retur n on sales for the number two brand is twice that of the number three brand. The power of the retail industry in the U.S. has increased dramatically over the past five years. The retailers are driving additional costs upon manufacturers . With established products, retailers are demanding a minimal level of turns p er year. With new products, retailers are demanding slotting fees and ever-incr easing promotional support. Product managers are forced to achieve current prod uct revenue and market share goals while stimulating demand for new products. M any industry experts feel that there will be consolidation of brands within many of the market segments in which R&H competes and, as a result of this brand con

solidation, that R&H will lose critical sales mass and become a major casualty. In the last two years the allocation of marketing dollars has changed dramatical ly; trade promotion has risen to 40% of total marketing spending, consumer promo tion has climbed slightly and advertising has declined. Industry analysts have pointed to R&H's trade promotion strategy as being the catalyst for the growth i n trade promotion in the industry as competitors have been forced to respond. R&H is widely regarded as a retail-oriented company. With a sales force that is twice the size of anyone else's in the industry, R&H has forged great retail re lationships over the years. R&H traditionally had the best order fill rate in t he business; however, recently some of the efforts to reduce inventory has cause d shortages in key promoted products. R&H Organization There are six Executive Vice Presidents (EVPs) in R&H responsible for functional areas. All the EVPs report to the President, who is also CEO. The Executive V ice Presidents represent Marketing, Sales, Finance, Manufacturing, Engineering a nd Human Resources. The EVP of Finance has responsibility for financial reporti ng and analyses as well as managing Procurement, Deployment, Scheduling and Logi stics. All the market segment managers report directly to the Executive Vice Pr esident of Marketing. Much of the blame for the performance of the company over the last ten years fel l on the shoulders of the former president. It was whispered that he was from t he "old school" and could not change his ways. The new president of R&H, an Ame rican, joined the company six months ago. He was the Executive Vice President o f an important European division of a sister company. The conglomerate has alwa ys prided itself on being able to leverage its multi-national resources. Current Situation Venn Teldren, the Executive Vice President of Finance, is considered to be a bri lliant man by many in the industry. Born and raised in Europe, Mr. Teldren rose quickly through the organization. However, because of his outspoken nature, he angered enough senior level executives ("showed up" as Mr. Teldren would say) t hat he has never received a position of president, even though his name is menti oned every time an opening appears. Recently the vice chairperson of the conglomerate responsible for the group in w hich R&H is a member, sat down with the R&H President and EVPs. The vice chairp erson stated that the company needed to improve performance within one year. He offered a couple of scenarios of what the conglomerate was considering in the e vent that the management failed to improve profitability. Scenario 1: Drop unprofitable brands and reduce the size of the company Scenario 2: Merge the company with a sister company that has similar distribution requirements and have proven profitability Recent Initiatives R&H has recently taken part in an industry-wide study called Efficient Customer Response or ECR. The study found that an industry-wide effort to develop more efficient trade practices and delivery systems could save an aggregated $30 bill ion dollars a year. PwC assisted R&H in this study. All the EVPs agree that th ere are huge dollar savings that can be achieved with efficiency improvements. Venn believes that the supply chain (i.e., Procurement, Manufacturing, Deploymen

t, Scheduling, Logistics, and Warehousing) can become a strategic advantage for the company if it can outperform its competitors. PwC studies have shown that i mprovements cannot be made without the input or the support of all the functiona l areas of the company, especially Marketing and Sales. The EVPs from Marketing and Sales do not always see the Supply Chain as key players; in fact, the EVPs of Marketing and Sales see the Supply Chain as only a vendor to them. Venn knows that the results of the ECR initiative may not be enough to rally sup port among the EVPs. Venn knows that whatever strategy is accepted needs to def ine the roles of each of the EVPs and to provide an outlet for each EVP to demon strate his and her skills. He is also aware that the other EVPs are very consci ous of the growth of Venn's power. Each EVP will initiate a project with the as sumption that the architect of the solution to R&H's current situation will be i n position for the next presidency. The EVP of Human Resource has championed the need to implement a whole new way o f envisioning the company working together. She has envisioned a flatter organi zation and has spent years developing studies with another leading consultancy t o support her vision. She has a strong supporter in the EVP of Sales. The pres ent EVP of Sales was originally from Human Resources. Her vision has always ent ailed an extensive re-structuring and re-training effort. The EVP of Engineering feels that the company needs to invest in its new product capability. The strategy is to acquire smaller, regional companies that are pr oducing differentiated products. "We can absorb them into us and stimulate our new product pipeline," he stated. "With these new, regionally proven products, we can fill capacity and leverage our distribution and sales strength. I can al so energize my area with fresh ideas. It's win-win, no doubt about it." The EVP of Manufacturing is sick and tired of hearing that manufacturing is the problem. He points to the fact that they re producing and shipping three times the product they were five years ago with the same number of people they had eig ht years ago. If things don't change in other areas, then things won't change i n Manufacturing, other than the inability to support the orders coming in. The EVP of Marketing believes that a combination of re-structuring and acquisiti on is needed. He wants to reduce the salesperson's role with the retailer and f ocus on consumer spending behind a "high quality" message grounded in tangible p roduct benefits across all product segments. He wants to broaden the product mi x with new products from acquisition. The Engagement Venn has mentioned to Gary Forstman, the PwC engagement partner, that he is will ing to devote the necessary resources in his functional areas to prove out the r ight strategy to the other EVPs. Venn has also indicated that the company is wi lling to devote significant resources and capabilities to the right effort. "Al l the EVPs know," he said, "that there will be whole-scale changes if the compan y doesn't turn itself about." Mr. Forstman has called Grady Means, ISS SBU leader and partner, and said, "This is PricewaterhouseCoopers' first major engagement with R&H after several years of smaller engagements where we were able to demonstrate our ability to implemen t solutions. Now we have an opportunity to really shine. The company is re-eva luating its strategic position and has asked several consulting firms to talk to them." Grady discussed the situation with ISS partner, Michael Hanley, and the y agreed that you would be a great person to work on this project. You receive a call from Grady. Hello, How are you doing? After exchanging pleasantries, Gr ady explains the situation to you. "We need some dynamic thinking on this one. I know Venn Teldren from years ago. Venn is going to be all over us if we don'

t get this right. What's important is that we show Venn that we have a vision o f where the company needs to go, how the parts fit together and how they are goi ng to get there. What is important is that our analysis is fact-based. We need to be ready to say to Venn, "This is the situation, this is the problem, this i s the solution and this is step one, step two, step three on what you need to do tomorrow." This is a big opportunity for us and I'm counting on you. See what you can come up with by this time next week. Feel free to call Michael or mysel f with any questions. Okay, talk to you soon. Questions 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. ? 11. What is your assessment of the present situation? What are the key areas for change? Why do you believe so? What do you envision your product to be in a week? What type of additional information would you want? What type of analysis do you believe needs to be performed? Do you have an idea concerning the analytical structure? What type of framework might you envision for this strategy? What are the key elements you would include in designing a strategy? What are the key elements you would include in implementing a strategy? What is your assessment concerning R&H's ability to implement a strategy What are some key performance indicators that you would suggest?

12. What are the key issues between the Supply Chain and other areas of the company (such as Marketing and Sales) that must be addressed? 13. What are some ways that improvements in the Supply Chain will impact the other areas of the company, especially Marketing and Sales? 14. 15. How does Supply Chain effect the value of the company's brands? What are the risks that the PwC team faces in this engagement?