Insurance

Conseco Inc. is a diverse financial organization providing services in insurance, risk management, investments, consumer finance and lending services markets. The company’s customers are primarily middle income individuals and families and senior citizens. Conseco was incorporated in 1979 as a life insurance holding company and quickly devoted its efforts to rapid acquisition of other financial companies throughout the industry. The company was often characterized as entrepreneurial due to a history of growth through acquisition.

The company grew to $95 billion in assets, 13 million customers and 14,500 employees by the year 2001. One of the riskiest acquisitions Conseco made was that of Green Tree Financial Corporation, which ultimately tripled the cash management departments wire transfer volume. The Cash Management department will be the focus of the analysis and recommendation set forth by the authors of this paper. During the rapid growth period of Conseco, the board of directors hired former CEO of General Electric Capital Corporation, Gary Wendt.

The leadership provided by Mr. Wendt to the organizational structure was to strategically push decision making and accountability down to the business units. His philosophy, to first re-define the business units and then for the business units each to become committed to process excellence meanwhile he tied the officer’s compensation to those specifically designed goals. This philosophy had a favorable effect on the employees because they could clearly identify their portion of contribution to the corporate goals.

The corporate vision became easily adapted by the Cash Management division as they provided services for many of the daily business function as a centralized function. The primary responsibilities of the Cash Management Department was for managing cash activity, including consolidation of cash, funding accounts, settlement of trade activity and investing of excess funds. Robert McNutt was the proactive department manager for cash management. When Green Tree financial was acquired the department consisted of a well educated cohesive group of professional.

The acquisition tripled the work load for the department as a consequence created many problems in the manual wire transfer system currently in place. The manual wire transfer process flow required the associated to process a batch of wire transfers and prepare them to transmit utilizing the faxed authorization document. The wire transfer requests came into the department from remote facilities throughout the country. Once the document was received it had to be verified, authorized, and checked to validate funding, review for proper authorization.

This process was tedious and monotonous especially considering there were between 200 to 500 wire transfers per day. There were several problem dealing with this volume of information daily: when faxes were received and illegible, a needed to be made to verify the information, verification of authorization was done by matching a listing of over 200 people (a list that changed daily), wires over a certain monetary limit required an officers signature, and the final process required that photocopies of all transfer be forwarded to the St. Paul office via overnight delivery.

McNutt was aware the process needed to be streamlined and was fearful he might loose valuable personnel if the tedious job was not changed. The solution to the labor intensive problem was a vision to build a Web-Based cash management system that would address the entire problem the department faced. The idea was met with approval at the corporate headquarters in Carmel, Indiana. After McNutt received authorization from his immediate supervisor and a concurrent sign off from the internal auditor he was able to pursue the development of the Web-Based solution.

Many advantages were apparent to management especially the fact that Conseco Finance general ledger interface could be integrated into the new system. He had full support from the accounting department and the treasury unit with in the organization and eventually chose to use an in-house division named Codelinks to create the system. It took the team a total of eight months to develop the system most importantly because Codelinks was located in India.

The development of the program had a few of its own problems beyond the fact of the software programs were in a remote location; there was not any dedicated staff for the project, the individuals that assisted with the project still preformed their daily tasked and as a consequence the project lost focus from time to time. Despite the constraints the method of development succeeded in producing a product that was user friendly in a window based data system and all input on screen prints changes was completed via the internet, input was given from each of the key departments and program changes incorporated.

The new program streamlines the wire transfer process and eliminated mistakes, phone calls, authorization problems, photocopies and overnight deliveries. Codelinks believed the product was so well constructed that marketing the product in the future had been planned. The streamlined system also saved the company money an estimated $60,000 annually as well as eliminating one and a half positions in McNutt’s group. Read also under what circumstances should a company’s management team give serious consideration

Formal training on the new system was not planned because they agreed the menu driven system would not require training and Codelinks had prepared a user manual as part of the contract for the program. The Web-Based wire transfer project supported the organizational goals for improvement of process controls. It also saved the company money and the business unit had successfully integrated their system within the financial divisions of the corporation based on their own decision making abilities, again which supported the company goals.

When we consider the project as a whole there were not really any dramatic changes but more simply process improvements. The advantages of the system are numerous: the system became more reliable, the menu-based system required all the necessary data on the form before it could be transferred, phone calls were eliminated, automatic download to the Bank of New York could be preformed, spot reviews could be conducted for quality assurance purposes, division and branches had instant access to information, photocopies were eliminated, overnight shipments were eliminated and St.

Paul Division had access for information on the general ledger days earlier. There are some disadvantages to consider however, if the system went down was there a back up plan? When they cut over to the new system, could they really afford to be without trainers and a support team? Will the system work with out error or conflict? Was there a way for Codelinks to add a data acquisition system to the program for back-up purposes? Careful consideration of these issues will be addressed in the analysis portion of the case study.

Analysis The corporate culture of Conseco changed with the arrival of former GE head-honcho Gary Wendt in June of 2000 (ironically, Wendt would quit in October of the same year – www. cfo. com). Wendt’s goal was to refocus the company and give more decision making power to newly defined strategic business units. It was under Wendt that Conseco corporate was restructured to only include the Cash Management, Capital Management, Legal, and Corporate Finance groups (Thompson and Strickland C-665).

The dramatic came about because Wendt felt that after so many years of debt-financed acquisition, the company needed to alter its strategy of growth through acquisition and recommit itself to internal and external process excellence. These changes resulted in a more flattened organization. A organization in which employees at all levels were educated in the goals of their specific business unit and where year-end bonus compensation was tied to the meeting of business unit goals (Thompson ; Strickland C-665).

The managers of the SBU’s were given the freedom to make strategic business decisions. This very freedom is what allowed Robert McNutt to pursue the creation and implementation of an unbudgeted web-based cash management system, though it could be argued that the decision to go forward with the new system was not truly an option. The textbook makes clear that McNutt’s team was short of staff and was overworked (Thompson ; Strickland C-661 ; C-662). That fact being stated, the Cash Management team had to come up with a way to automate the wire-transfer system or they were “sunk” (a key success factor).

Also, McNutt was under “top-heavy” pressure to make sure that whatever systems he put in place complied with the corporate objectives of cost-cutting and process streamlining. The strategy that was implemented by Cash Management group was to streamline their processes. The objectives for the project were simply to eliminate the cumbersome and tedious manual processes, and evolve into the new system. Implementation of the strategy to achieve this objective appeared to be well thought out and widely accepted within the centralized corporate structure.

As stated above the other key factor was the monetary compensation tied into the success of controlling overhead costs. This focused low-cost strategy was starkly different than Conseco’s previous two decades of pursuing broad differentiation through continuous acquisition. Even though technology based systems have a way of decentralizing organizations, in this instance the web-based technology by its very nature connected the wire transfer users within the system, providing instant feedback for one another.

The execution of the strategy proved to be beneficial in many aspects nonetheless, it is the collective opinion of the authors as to whether the long term strategy accommodated the last task of the strategic plan, monitor and evaluate the implementation. It appears management may have been inexperienced at the inherent problems of switching from a manual system to a Web-Based system and the tremendous support that is often required for the long term success of such a project. Several driving forces made themselves evident throughout the case study.

For example, corporate goals needed to be satisfied at every business unit which, in turn, affected each worker within the business unit. The skilled and educated workforce within the cash management group not only were a precious commodity, but were a hard working cohesive team willing to go beyond just their normal workload to contribute to the success of the Web-Based system. An additional driving force was the opportunity to streamline the process for wire transfers whereby they could meet the corporate goals for cutting overhead cost.

This business unit was forced to advance technology or loose human resources, become overburdened with work and loose monetary compensation in the form of year-end bonuses at the same time. In order to further the Conseco analysis in terms of quality management, the 1992 Baldrige Award Criteria has been applied to the Cash Management group to evaluate seven key aspects of the organization. Effective use of the tool allows for continuous process improvement.

In August 2010, the organisation implemented a new Motor Aggregator Product known as echoice. The key objective was to deliver a motor product, specifically targeted and priced for the aggregator market. echoice offers core coverage at competitive prices, with a range of add-on services promoted throughout the product lifecycle. This product was developed to enable RSA to improve profitability in a highly price-sensitive channel. This e-self service product was introduced to avoid increase in operation costs and to improve customer service and expediency.

This product is still a relatively new proposition to the market. This was a product that the organisation had to be aware of how the competitors would react, but also customer feedback was also something that had to be considered moving to a self service product. Although echoice are less than two years old, the business is now growing rapidly and predicted to be on target for the forecasted growth intended. Part of the echoice strategy is to have a Core Operating Ratio (COR) of 96. 5%.

This means, if the company achieves the COR target they will be effectively growing the business at the right cost. To do this the organisation must “Create a competitive strategy that must establish a profitable and sustainable position against the forces that determine industry competition “(De Wit Meyer, M 1999) SWOT Analysis As a starting point for developing strategic options a SWOT analysis is used, Appendix 1 (SWOT) has highlighted the areas that could potentially increase profit or have the opposite effect.

A SWOT can invite decision makers to consider important aspects of their organisations environment and help them organise their thoughts. Business Strategy Review, 2003, Volume 14 Issue 2 pp 8-10 The SWOT table does show a lot of information and highlights key issues, however it does not show any priority issues or opportunities. It also demonstrates a lack of strategic judgement about what is really important about the business. With its lack of any explanation it can be misleading on any of the points.

A Shortlist with each point well argued is more likely to be convincing. A business always needs to stay ahead of the game or be aware what weakness they have and what competitor threats could damage the business. There is no doubt this is a valuable tool in the field of business strategy because it invites decision makers to consider important aspects of their organisation’s environment and helps them organise their thoughts. The idea that managers should be thinking about their organisation’s SWOT based variables is very important in the process of decision making.

They key area that RSA has been particularly aware of, is the new echoice product has been an opportunity for the organisation as it has been targeted as a price orientated product and being able to get a foothold in the market. This falls into the opportunities however a threat for insurance overall is the threat of new entrants due to the return of an underwriting profit through tactical fraud prevention and the internet which may open up large competitors to come into the market. Porters Five Forces Model “The essence of formulating competitive strategy is relating a company to its environment.

Although the relevant environment is very broad, encompassing social as well as economic forces, the key aspect of the firm’s environment is the industry or industries in which it competes. ”(Porter, M. E 1980) This type of model of analysis is often undertaken using the structure proposed by Michael E Porter (1980), as per Fig 1. 0. This is often called Porters Five Forces Model because he identifies five basic forces that can act on the organisation: 1. The bargaining power of suppliers; 2. The bargaining power of buyers; 3. The threat of potential new entrants; 4.

The threat of substitutes; 5. The extent of competitive rivalry. The objective of such an analysis is to investigate how the organisation needs to form its strategy in order to develop opportunities in its environment and protects itself against competition and other threats. (Lynch 2000) Fig 1. 0 Porters(1980) Five Forces Model Source:http://www. smartkpis. com/blog/2010/11/01/marketing-performance-%E2%80%93-the-five-forces-model-by-michael-porter/ For the purpose of this report, the five forces model has been used to analyse personal car insurance within RSA, (Appendix 3).

This model is a strategy tool and should help the business when used, linking this in with the analysis from SWOT. RSA have established a key area to be looked at is technology; this will enable the business to stay ahead of its competitors. The five forces section that this fits into is “The extent of competitive rivalry”. The business is in high competition at present with other competitors within the marketplace. They also need to have fast growth to help stay in the game as more consumers are starting to look around at their renewal for a more competitive premium.

Aggregators (Mintel 2011) and customer behaviour has been a key driver for this change within the business; the organisation required a product that would ensure that they remain competitive within this arena. Table 2. 1 Industry stages http://www. investopedia. com/articles/basics/04/030504. asp In terms of ebusiness within the direct business of purchasing car insurance this is now at the growth phase of the ‘industry growth stages’ or life cycle. (This is confirmed through the Quarter one echoice sales figures for 2012).

It is still quite a new initiative to customers, doing business directly through the Internet and able to self serve rather than speaking to a customer manager. Where as Insurance brokers would be classed as in the declining phase, this is due to the increased amount of usage of comparison sites. Brokers cannot keep up with the demands of the customer or offer more competitive prices. The Mintel Report (2011) states that around half of all car insurance policyholders arranged their car insurance online. Compared to five percent using a traditional broker.

The customers both competitors are attracting can be found in Appendix 2 It states on investopia (2012) that “During this period of rapid growth, companies will eventually begin to lower prices in response to competitive pressures and the decline of costs of production, which is often referred to as economies of scale. But costs decrease at a higher rate than prices, so companies entrenched in growth industries often experience growth in profits as their product or service becomes fully accepted in the marketplace. ” http://www. investopedia. com/articles/basics/04/030504. asp Competitive Rivalry

Lynch (2000) states that it is difficult to differentiate products or services, than competition is essentially price based and it is difficult to ensure customer loyalty. echoice was initially branded from RSA on its launch in 2009 but then late 2011 changed to More Than, this was to relate to the More Than branding a well known direct insurer and to enhance the Brand Strategy to be more appealing and competitive on the aggregator market. A key initiative within More Than is to drive Brilliant Service and to be set aside from other insurers not just as being competitive but also for the service the customer receive.

It is reported on the Investopia website (2012) that “The insurance industry is becoming highly competitive. The difference between one insurance company and another is usually not that great. As a result, insurance has become more like a commodity – an area in which the insurance company with the low cost structure, greater efficiency and better customer service will beat out competitors. Insurance companies also use higher investment returns and a variety of insurance investment products to try to lure in customers. In the long run, we’re likely to see more consolidation in the insurance industry.

Larger companies prefer to take over or merge with other companies rather than spend the money to market and advertise to people. ” Brilliant Service is a key theme within the quadrants of the strategy wheel (Appendix 4). Think Customer is a key priority to the organisation; recently they have taken steps of how they can bring the Senior Leadership Team towards the people that drive the business closer to the customer. A new initiative known as Customer Connections has been implemented where they have recruited 516 people within the business that deal with the customers daily across all channels and deal with every type of customer.

A series of meetings is currently taking place to discuss customer stories, an insight into the customer journey and the service that is provided. From this key actions are being driven to increase the customer journey to ensure all that deal with the organisation tell a positive story and enable More Than /echoice to be differentiated from other insurers. The expectation is that the customer must be at the heart of everything that is done. A new vision has been launched within RSA, which will embed this within the organisation.

“To be the team that redefines customer trust and value and embeds it into the DNA of the business. This will lead to a behavioural change within the organisation across all areas of the business. ” Development of Technology RSA have recently changed their internal systems, this was to drive the ebusiness strategy from echoice across into More Than, enabling the motor product to be a product that will be used as a channel of choice, being adaptable and to be innovative like echoice.

Customer behaviour is changing and customers are becoming self sufficient, through the Internet. (Journal of Interactive Marketing 2000) Therefore the RSA Motor Product has to change due to the demands of the customer. The system was already within echoice; therefore RSA looked at the cost advantages and produced a new system that would be more individual and cost effective. D. Boddy (2002) states barriers to entry can be if there are high entry costs, where significant capital investment is required. This is the case when looking at a new system in the insurance sector.

This new system enables the employer to input all customer data and behind the scenes look at thousands of different pricing scopes that are more individual to the customer. The new system also meant that if changes in the market required the business to increase or decrease premium, it could be done with ease, as the system was now adaptable and quick to implement changes. Finally it stood out to highlight the businesses Brand Values, been modern, clear and keeping things on the move. Overall the business had come up with an easy to use system whilst been able to keep the costs low, as well as been fast and efficient.

Restrictions of this model when applying to RSA Although this tool is a useful early step in analysing the environment, it is initially static, where as the competitive environment in practice is constantly changing, forces can vary more rapidly than the model can show. The model of Porter’s 5 forces is suitable for analysing an industry in general. You can get a good overview about the main factors of the external environment and with the aid of other strategic tools it can be helpful for making decisions concerning the entry in the business or for further expansion.

But, like all economic tools, there are limitations. This model helps to simplify the view to this industry but every personal situation is too complex to analyse it with such a tool. There are always many other factors to take into consideration. If you combine this tool with other common external environment tools like PESTLE (Appendix 5 ), SWOT and the Industry life cycle, you get a very detailed overview about the opportunities and the threats of an industry. In the early 1980s the competitive situation was completely different to today’s situation.

There was no thinking about globalization and competitors who force their way into a market. Changes are more rapid because of the information age. Porter had not even thought about selling products through the Internet without seeing them. Before starting the analysis of the industry, how important each force in the current sector is has to be worked out because not all the five forces have the same significance The model assumes that there are no changes in the environment but in fact the market is very flexible.

This is shown for example on the enormous growth of the e-commerce sector. Although this tool is a useful early step in analysing the environment, it is initially static, where as the competitive environment in practice is constantly changing, forces can vary more rapidly than the model can show. Conclusion Using the five force model can help a useful early step to help a business become more effective. It is especially useful to look at competitors when customers have a change of habit and need to have something new in the market for example web/direct insurance.

Competitive Rivalry is good for customers as it means there is always a battle to keep costs low. Porter’s analysis proceeds on the basis that, once such analysis has been undertaken, then the organisation can formulate a strategy to handle results: predictive rather than emergent. (Lynch, R 2000) Barriers to entry are unique characteristics that define the industry; they reduce the rate of entry to new firms, maintaining a level of profit for those already in the industry.

In the Insurance industry you just have to view adverts on the TV. Other insurers offer unique advantages to take insurance out with them. Although echoice and More Than have updated their internal systems they are unaware what competitors have as their next barrier to entry. Therefore this is a continuous process the organisation needs to do looking at new initiatives of how they can continue to grow the business at the right cost and differentiate themselves from others.

Identifying Research Problem The first step and perhaps one of the most critical steps in carrying out cuisines research is to isolate and identify the problem. In the research study we are considering the problem identified is how a company can be assisted in accurately predicting short and long term sales forecasts by analyzing factors that affect the sales performance of its life insurance agents. By analyzing this data the goal is to produce a predictive model of agent and agency performance in an attempt to figure out the most important predictors of successful sales performance.

This model would allow increased focus and training based on the predictors to maximize sales by the life insurance agents and their prospective agencies as a whole. Research Method Used The type of method used in the study is the reporting study type. Using this method the researchers considered characteristics of agents including formal education, professional education and various types of training used in the industry. The researchers also considered other studies in an effort to provided baseline and comparison models to use in helping develop their hypothesis.

How Research is Solving the Problem This study went beyond what other studies failed to do, because it provided further analysis and comparative data to further study and investigate radioactivity. Much of the prior research seemed to only measure certain factors e. G. Behavioral, tenure, and education. This study looked at both sales and commissions for home service agents and regular agents because of the significance in number Of policyholders and leads.

They study required data to be collected by contacting area agencies and having those agencies complete questionnaires on each of their sales agents with at least one year of contract. The final data was compiled from seven local agencies including Commonwealth Life Insurance Company and The Prudential Life Insurance to name a few. The study described its weakness for data that was often time hard to evaluate and not readily available or hard to measure. For instance, the study about agents with formal education, professional education and specific training showed no effect on production.

The benefit of the study was that it was able to analyze possible factors that were believed to have an effect on an insurance agent’s productivity. The approach of this study used two research techniques. It used basic a reporting study that summarized data to compare findings on the topic collecting their own independent analysis and used only data that was objective. The article referenced previous studies and data available on the subject, and then relied on its own findings and research. Over the years there had been research that suggested other causal affects of an agent’s productivity.

In this effect the study also used explanatory research because it compared prior studies and looked at the hypothesis that caused the inability to increase productivity. The study required data to be collected by contacting area agencies and having those agencies complete questionnaires on each of their sales agents with at least one year of contract. The final data was compiled from seven coal agencies including Commonwealth Life Insurance Company and The Prudential Life Insurance to name a few.

Diversification has been a prevailing trend in financial institutions especially by banks spreading deposits and loans across a broader range of economic activities so as to avoid concentration of their personal sector funds in a single aspect of economic activity. This has been largely as a response to deregulation, rising competition and financial innovation in the finance sector. In particular, banks have been diversifying into insurance on a larger scale and for a longer period than in securities. ‘The Bancassurer’s market share rose from .

2% in 1989 to around 20% in 1995’1. Banks have also revolutionised their involvement in insurance companies from agency diversification whereby it sells insurance products produced by the insurance companies, to purchasing insurance companies and more recently to developing own diversification where the bank manufactures its own insurance products. A good and probably the earliest example of a bank diversifying into manufacturing insurance products and services in the UK, is the TSB Trust Company, established in 19671.

A more recent example is National Westminster Bank establishing its own life assurance subsidiary in 1992. While some argue that banks are abandoning their traditional duty as a deposit-taking institution to engage in unrelated business, others argue that the act of banks providing insurance services or products should not be considered as ‘diversification’ but as engaging in a strategic capital requirement; Lewis, M (1990) describes banking as a form of insurance (liquidity insurance).

Llewellyn (1991) however stated that the ‘central strategic issue’ of any financial system is that of separation versus integration. Based on this realisation, in the subsequent paragraphs the arguments for and against banks diversifying into insurance business will be discussed with the aim of reaching a conclusion as to whether this venture should be enhanced or curtailed. As banks diversify into insurance business they enhance the competitive environment in which insurance products and services are provided.

This is also the case for any type of diversification in the financial sector; as more institutions provide similar services, the price offered to consumers is less, there is increased convenience in terms of availability and choice for customers and as the specialist nature of insurance companies is eroded through diversification, they tend to be relatively more efficient in providing their services.

However, it is somewhat paradoxical that one of the reasons for banks diversifying into insurance business is as a strategic response to their traditional services being eroded by other financial and non-financial institutions including insurance companies. Therefore, because of increased competition in the financial sector, banks diversify and thereby further intensify the competition.

This has been the ‘prevailing political orthodoxy’2 of the 1980s in the UK as well as in many countries. Banks perceive diversification into insurance business as a way of broadening the relationship with personal customers thereby extending their source of income and profits. Extensive diversification by major clearing banks into the distribution and subsequently, manufacturing of life insurance products occurred mainly during the 1980s and early 1990s.

This was partly because at the time, insurance products offered by insurance companies were gaining sizeable market share as the personal sector invested heavily in these products and with financial innovation, the previously rigid demarcations between banking and insurance products were reduced3. Since this served as a prospective loss to banks, they viewed diversification into insurance as an opportunity to recapture personal sector funds and increase their profits. ‘By 1988, 40% of life assurance products were distributed via banks’3.

This case for banks diversifying into insurance can be argued as mainly an advantage to the financial firm (depending on how the profits are spent) whereas the former case can be seen more from the perspective of customers and regulatory bodies. Another argument for banks diversifying into insurance is the probability of this venture improving the systemic risk-return trade off in the diversifying firm. This however depends on the type and correlation of risks involved, (negatively correlated risks tend to improve overall risk-return trade off and vice versa).

The figure below shows how diversification can improve a firm’s risk-return opportunities: Assuming without diversification the diversifying bank chose point X, with diversification the curve shifts out and the bank now has more risk-return options. At point B the bank earns a higher return for the same risk, at C; a higher return and lower risk, at D; the same return for a lower risk and E depicts a lower return and risk. However, at point A, the bank earns a higher return for more risk, implying that diversification does not necessarily reduce risk but this will be discussed in a later section.

Most empirical studies on the correlation between diversification and risk prove to be rather inconclusive and ambiguous. Nonetheless, 4 ‘Saunders and Walter (1994) found that banks could have reduced risk had they been permitted by regulation to diversify into investment and insurance activities’ also Boyd & Graham (1988) found evidence of risk-reduction in banks diversifying into life assurance. A by far important case for banks diversifying into insurance business is the supposed potential for economies of scale and scope.

In theory, the perception is that because of synergies (the idea that 2 + 2 = 5 or more), a diversified business can supply more services combined, cheaper than by separate companies. This is a major argument by banks attempting to diversify into insurance business, in that banks are thought to have significant cost advantages over insurance companies (through their delivery system for instance), information advantages attained through managing customers’ accounts, economies of scale in portfolio management resulting from the ‘law of large numbers’, and a good reputation compared with most insurance companies, etc.

Based on this argument, banks find it much easier to diversify into insurance business than insurance companies diversifying into banking (asymmetric advantage). Empirical evidence supporting the existence of economies of scale and scope is limited and somewhat ambiguous which however will be discussed later. Nevertheless, some research indicates economies of scope with large banks especially through the use of information technology. Giddy (1985) and Baumol, Panzar and Willig (1982) observed economies of scope through offering a wide range of products and through shared inputs respectively5.

Mondavi: What threats in the business environment does Mondavi face and how is it addressing them? High quality premium wines produced by France, Italy, Spain, Chile and Argentina. In the past years, Demand increased for premium wines, while consumption of inexpensive, lower quality wine had fallen. As a result of changes in consumption patterns, Europe had created a great deal of excess capacity, while wineries of the new world (South America) continued to increase vineyard acreage in response to strong demand for high quality wines.

The size of the global wine industry was estimated by 155 billion dollars (approximately), where Europe and South America dominated global consumption of wine with a market share of 70%. Mondavi addresses this issue by leading the production of premium table wines in the US instead. This market participated with 11% of total world consumption representing 17 billion dollars. Analysts expected demand for premium wines to grow at 8% to 10% per annum. Thus, Mondavi focused 90% of its sales in the US through 15 top retailers and 10% to the rest of the world through exporters.

Leverage Risks and Capital requirements The premium wine industry is a capital intensive business. Historically, Tim Mondavi and his team had financed its operations and capital spending principally through borrowings, as well as through internally generated funds. They owned vineyards in California, and the joint ventures controlled land in California, US and Italy, which produced 7% of the company’s total grape supply. The company purchased the rest of its grape supply from 360 independent growers through long term legal agreements.

Because in the last years property value had risen and competitors had spent large amounts of money pursuing aggressive acquisition strategies, they could not face further growth with the same strategy due to the increasing high cost of capital. On the other hand, they could not outsource more grape from independent growers, since Mondavi worked closely with the growers to guarantee prime quality and the use of the new farming techniques developed by the company’s own vineyards.

So Mondavi chose to focus on a different strategy for the future. He planed to grow its internal grape sourcing by 25% by 2005, focusing on organic growth of the wine and appealing to a new segment of consumers. Management plans to take the company to the next phase by enhancing the high quality of their existing brands, appealing to the organic sectors of healthy consumers and strengthening market positions.

Product Substitutes Mondavi faced three types of competitors: rival firms that were focused on making premium wines, large-volume producers moving aggressively into the premium wine business, and global alcoholic beverage companies that were acquiring wineries to complement their beer and/or distilled spirits businesses. He estimated that only 12% of the consumers drank 88% of wines purchased in the US. To stimulate demand for his products, Robert Mondavi set out to educate American consumers and to enhance their appreciation of fine wine.

Over the years, he became a leading promoter of the California wine industry. He encouraged visitors to tour the winery and to taste the new wines that he created. In addition, Mondavi began to host concerts, art exhibits, and other cultural events at the To Kalon vineyard. In 1976, the company established the Great Chefs program, the first winery culinary program in the US. Robert Mondavi explained his philosophy regarding fine wine, food, and the arts: “People who enjoy food, art, music, also enjoy fine wines, and they enjoy them more together. . . . Wine is more than a drink.

It’s a culture. ” Over time, the company began to advertise more extensively to broaden its customer base. Mondavi launched its first major radio advertising campaign to promote the Woodbridge and Coastal brands in 1998 and its first national television advertising in the fall of 2000. The firm’s advertising expenditures, including point-of-sale materials, reached $20 million in 2001. Michael Mondavi reflected back on the limitations of the firm’s marketing strategy of the early 1990s: “All those black tie events. We were complacent, cocky, and started believing our own press.

For decades, our industry sent the wrong message, that wine is for special occasions, while the breweries told people that beer is the beverage of every occasion. That’s crazy. In the old country (Italy), wine was a blue collar beverage, not an elitist, white collar drink. Our goal is to grow the customer base by removing wine’s mystery, while still maintaining the magic. ” As previously mentioned, the next step is becoming organic wine producers of its premier brands. While maintaining high quality standards, he will reach the new target audience of green consumers.

Hilton Manufacturing Company Should Product 103 have been dropped? (3 ways to see)

Lost sales ($5,202)

• Cost savings DL $1,341
• Compensation insurance 67 DM 946
• Power 59 Supplies 68 2,501
• Repairs 20 Lost CM: total impact of dropping ($2,701)

Loss eliminated

• Costs that remain Rent Property tax Property insurance Indirect labor Compensation ins.
• Light and heat
• Building service
• Selling expense General admin Depreciation Interest Other income Total impact
• $404 $365 78 103 448 21 20 14 917 346 713 102 (10) 3,117 (2,703) nit CM (see later)

Total impact

lost CM = 5. 3909 x 510,276 = $2,702

The second type of users Is a technical, who Is allowed to update the status of a certain computer part (fixed, not fixed, etc. ). The third type of users Is the system Administrator, who has the ability to add and remove technician and user accounts. 2. A Car Rental System This system will allow for three types of users: guests, members, and administrators. Guests will be able to browse location, availability, price, and model. Members will have their personal information stored (I. E. Name, address, and credit card info. ) and will have access to any specials.

Finally, the administrator can change or update car models, prices, etc. 3. A Flight Reservation System Users will be able to look for, book and cancel flights, as well as, organizing trips. There are 3 different types of users. The administrator will be able to add/delete destinations, change prices and so on. The registered users will be able to book/ cancel flights. Finally, the guests will be able to search for flights, but they won’t be able to reserve them unless they register _ 4. A Grade Report System This system allows a professor logs on to create, access, and updates class grades for dents in his or her class.

The students in the class are then able to log on and check their scores for all exams taken in that class. A system administrator is responsible for logging in and adding/deleting students, teachers, and courses from the mall database. 5. A Movie Store System This Is a system for selling and buying DVD’s and videos of movies. There will be three types of users. First the regular customers, they can access the database of DVD’s and videos with different types of search. Second there is a group of users that can post DVD’s or/and videos to be sold.

These users have access to add movies to the database, so that regular customers can search for these movies. When the customer has finished searching for a DVD and/or a video he/she can communicate a message to the seller In order to buy the product from him. The third class of user Is the administrator: this user will be in charge of administrating the database and users. The administrator will be in charge of giving and revoking selling privileges to regular customers so that they are able to add videos and DVD’s in the database. . A Health Insurance System This system allows agents and customers to view and update Important Information. Heir agent’s information, family members, etc. Agents will be able to view and update their personal information and view the information about new businesses, renewals and commissions. This way, they will be able to help any policyholder or agent requesting assistance. Managers would have access to all modules so they will be able to help any policyholder or agent requesting assistance and would be able to update database with new prices. In addition, guest will be able to get free quotes. 7. A Medical Clinic Tracking System This system will provide the doctors and their staff with an electronic copy of the patient file.

The system will track information for billing purposes and for general management of the clinic such as reporting and document creation. The three levels of access are as follows: (1) Administrator: creates users, assigns roles, and maintain certain questionnaires in the application; (2) Support Staff including nurses, secretaries, and nurses aid: update, delete, and insert records, updating the system o reflect the actual hard copy of the patients file, also will run certain reports and letters generated by the system; and (3) Doctors: will have the same rights as the support staff plus the ability to access certain information via the web. . A University Registration System The University registration system will allow (1) registered students to view their current term schedules, (2) registrars to process students’ requests for adding and dropping classes. The system administrator will be able to add and delete students and also will be able to open new classes. The system administrator will be also able to determine the number of students in any given class. 9.

A Library System This system will allow the users to search for library material (book, magazines, videos, etc. ) according to the criteria specified. This system will also keep track of all the material circulation and their availability. There are three types of users. A patron can borrow and return library material. A librarian can update library material. The system administrator can manage the user accounts including both patrons and librarians.