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1PricewaterhouseCoopersCASEDISCUSSIONBUSINESSCASEInterviewCaseStudy#1Roane&Hickey,Inc.YouhavebeenrecentlyhiredintotheStrategicChange(SC)group,abusinessunitofPricwaterhouseCoopers.SCisthestrategythoughtleaderinPwC.TheengagementpartnerinConsumerProductshascometoSCtohelpdevelopastrategyforRoane&Hickey,Inc.(R&H).ThisengagementhasthepotentialofpositioningPwCtoR&Handitsparentconglomerateforthenextfive,possibletenyears.CompanyBackgroundR&Hisawholly-ownedsubsidiaryofamulti-nationalconglomerate.TheconglomerateownstencompaniesoperatingintheU.S.R&Histhelargestoftheten.R&Hisaconsumergoodscompanydistributingwell-knownbrandedproductsthroughgrocery,drug,massmerchantandclubchannels.With$4billioninrevenuesintheU.S.,R&Hisoneofthetopthreeplayersintheconsumergoodsindustry.Thecompanyhasbeenmarginallyprofitableoverthepasttenyears.Lastyearthecompanymadeaprofitduelargelytoanaccountingchange.AlthoughR&HonlyoperatesintheU.S.,itownsseveralmanufacturinganddistributionfacilitiesaroundtheworldtosupportitsproductionanddistributionsystems.R&HtakesadvantageoflowerlaborcostsinMexico,CanadaandSoutheastAsiatoloweritsmanufacturingcosts.R&HstillmaintainsthreeplantsintheU.S.Becauseoftheover-capacitythatR&Hhasexperienced,R&Hhasnegotiateddealswithsistercompaniesoverseastomanufactureanddirect-shipproduct.R&Hhasfourmarketsegmentsthatoperateasprofitcenters.Themarketsegmentsare:PersonalHygiene,ConsumerTissue,SoapsandDetergentsandPersonalCare.Eventhoughtherevenuesareroughlyevenlydividedamongallfourmarketsegments,PersonalCarecontributes90%ofthecompany'sprofits.InPersonalCare,R&Hownsthetwotopbrandedproducts,intheothercategoriesthecompanyhasthenumbertwobrand,andinonesegment,numberthree.R&Hhascommittedtobuildingaconsumerfranchisethroughaggressiveadvertisingandin-storemerchandisingsupport.2IndustryTrendsIntheU.S.,brandsareunderattackfromprivatelabels,whoarenowcompetingonbothpriceandquality.Brandsarelookingtojustifytheirpricepremiums.Thevalueofbeingthenumberonebrandcannotbetakenlightly.Thereturnonsalesofthetopbrandisalmosttwicethatofthenumbertwobrand.Thereturnonsalesforthenumbertwobrandistwicethatofthenumberthreebrand.ThepoweroftheretailindustryintheU.S.hasincreaseddramaticallyoverthepastfiveyears.Theretailersaredrivingadditionalcostsuponmanufacturers.Withestablishedproducts,retailersaredemandingaminimallevelofturnsperyear.Withnewproducts,retailersaredemandingslottingfeesandever-increasingpromotionalsupport.Productmanagersareforcedtoachievecurrentproductrevenueandmarketsharegoalswhilestimulatingdemandfornewproducts.ManyindustryexpertsfeelthattherewillbeconsolidationofbrandswithinmanyofthemarketsegmentsinwhichR&Hcompetesand,asaresultofthisbrandconsolidation,thatR&Hwilllosecriticalsalesmassandbecomeamajorcasualty.Inthelasttwoyearstheallocationofmarketingdollarshaschangeddramatically;tradepromotionhasrisento40%oftotalmarketingspending,consumerpromotionhasclimbedslightlyandadvertisinghasdeclined.IndustryanalystshavepointedtoR&H'stradepromotionstrategyasbeingthecatalystforthegrowthintradepromotionintheindustryascompetitorshavebeenforcedtorespond.R&Hiswidelyregardedasaretail-orientedcompany.Withasalesforcethatistwicethesizeofanyoneelse'sintheindustry,R&Hhasforgedgreatretailrelationshipsovertheyears.R&Htraditionallyhadthebestorderfillrateinthebusiness;however,recentlysomeoftheeffortstoreduceinventoryhascausedshortagesinkeypromotedproducts.R&HOrganizationTherearesixExecutiveVicePresidents(EVPs)inR&Hresponsibleforfunctionalareas.AlltheEVPsreporttothePresident,whoisalsoCEO.TheExecutiveVicePresidentsrepresentMarketing,Sales,Finance,Manufacturing,EngineeringandHumanResources.TheEVPofFinancehasresponsibilityforfinancialreportingandanalysesaswellasmanagingProcurement,Deployment,SchedulingandLogistics.AllthemarketsegmentmanagersreportdirectlytotheExecutiveVicePresidentofMarketing.Muchoftheblamefortheperformanceofthecompanyoverthelasttenyearsfellontheshouldersoftheformerpresident.Itwaswhisperedthathewasfromtheoldschoolandcouldnotchangehisways.ThenewpresidentofR&H,anAmerican,joinedthecompanysixmonthsago.HewastheExecutiveVicePresidentofanimportantEuropeandivisionofasistercompany.Theconglomeratehasalwaysprideditselfonbeingabletoleverageitsmulti-nationalresources.3CurrentSituationVennTeldren,theExecutiveVicePresidentofFinance,isconsideredtobeabrilliantmanbymanyintheindustry.BornandraisedinEurope,Mr.Teldrenrosequicklythroughtheorganization.However,becauseofhisoutspokennature,heangeredenoughseniorlevelexecutives(showedupasMr.Teldrenwouldsay)thathehasneverreceivedapositionofpresident,eventhoughhisnameismentionedeverytimeanopeningappears.RecentlythevicechairpersonoftheconglomerateresponsibleforthegroupinwhichR&Hisamember,satdownwiththeR&HPresidentandEVPs.Thevicechairpersonstatedthatthecompanyneededtoimproveperformancewithinoneyear.Heofferedacoupleofscenariosofwhattheconglomeratewasconsideringintheeventthatthemanagementfailedtoimproveprofitability.Scenario1:DropunprofitablebrandsandreducethesizeofthecompanyScenario2:Mergethecompanywithasistercompanythathassimilardistributionrequirem