Organizational structure and strategy in online grocery retail failures and mergers

Management PART I: The Biggest Grocery Store You've Never Heard Of QUESTIONS: ANSWER ALL

Discuss the organizational structure of Webvan as compared to that of Peapod. How was Webvan structured differently from Peapod? Which company's structure was superior?

Merely going online is not enough, as is evidenced by Peapod's superiority of organization in comparison to Webvan. One of the reasons Webvan is a causality of the Internet boom and bust of the late 1990's is because, before going out of business Webvan, spent $2 billion in an quixotic effort to simply re-create a regular supermarket's distribution service, despite the fact that it did not use the developing services of the Internet to any particular strategic advantage, when the brick-and-mortar grocery industry already had an efficient distribution system," and grocery stores were literally at every major intersection in most metropolitan markets," and already were satisfying customers. What reason was there to use Webvan instead?

But Chicago-based Peapod was actually the first grocer to couple home delivery with electronic ordering by having customers install proprietary software in their home computers, offering a unique service for late-night consumer-addicted customer's cravings. Peapod delivered out of stores before it fell under Webvan's influence and subsequently converted to a central warehouse distribution like Webvan's, and thus also proved unsuccessful in imitating the behavior of a regular grocery store with a tacked-on online component.

Question

How did size and organization play a role in the merger of online grocers with "brick-and-mortar" stores?

Because of their size, consistent loyalty base, and already existing competitive and effective organization structures, soon online grocers figured out that retail chains "with existing infrastructures" had an advantage over Internet grocers that the upstart groceries had to challenge or adopt in constructive fashion. These new businesses began forming alliances with the existing stores. "For example, GroceryWorks.com is now a part of Safeway. Peapod was rescued by the Dutch giant Ahold. Ahold went on a global buying spree in the 1990's, grabbing a large chunk of the U.S. market along the way. Its chief competitor is now Wal-mart, which is striking fear into the hearts of grocery executives everywhere."

Question

How can large grocers like Ahold organize themselves for customer responsiveness? Defend your answer.

At present, Ahold owns over 9,000 stores. None of them, however, are named Ahold. "What makes Ahold unique is that we are perceived by our customers as the local guy," says the company's CEO, Cees van der Hoeven." Ironically, this lack of brand name identification for Ahold allows stores to tailor themselves to different neighborhoods and local palates. While a customer who walks into Whole Foods knows he or she will be purchasing organic and wholesome produce, without additives, an Ahold owned store can tailor its supplies to a largely Hispanic population in one city area, and to an Asian population on the other side of the city, and use a different name. "Ahold's back office will squeeze suppliers into offering rock bottom prices" because the stores are all controlled by one organization. Ahold can thus draw upon a massive amount of suppliers. Ahold can buy in discount-producing volume from suppliers via the Internet all over the world, and can also distribute their products selectively to where consumers desire them most.

Question

If you were the CEO of Webvan what steps would you take to maintain the organization's success? Support your answer with at least 2 references from the lecture or your readings.

Segmentation remains key -- that is tailoring the distribution of a high volume of goods to the local market, and also using the Internet effectively and uniquely, either to access the lowest cost wholesale retailers of goods, as does Ahold, or to gain access to consumer desires and match them accordingly, though an online organizational website that draws user input.

PART II

Answer any 4 of the following questions:

Question

Discuss evidence you have seen of the imperatives for change, flexibility, and responsiveness faced by today's firms.

Like a shark, a firm or brand name must swim within a competitive organization, or die, gasping for its breath. Even if a firm consistently offers a competitive quality product at a low price, there is always a competitor breathing at its heels to offer a still lower price -- consider how, "From meager beginnings, Kmart and Sears both grew quickly to dominate the retail landscape after World War II. But "then along came Wal-Mart and other big discounters like Target, newer chains that changed the face of retailing in America.... It's not so much that Sears and Kmart did anything wrong, it's just that they didn't change while the rest of the industry was changing around them," said Barbara Kahn, professor of marketing at the Wharton School. (Bhatnagar, 2004)

Question

Considering the potential advantages of large and small size, would you describe the "feel" of your college or university as big, small, or small within big? Why? What might make it feel different?

The advantage of going to a large university is that one is exposed to the resources of a large student population, an incredible array of career and study choices, and also a cohesive sense of school spirit that comes from being part of a large community. A small liberal arts school often draws from a narrower and more regional student body, and often offers less career and professional services and resources. It does offer more personalized attention and a greater focus on undergraduate education. However, a small but diverse school can 'feel' large, particularly if the academics are of a caliber to draw students from all over the United States and the world, and a large school can feel small within the confines of a highly specialized major within the school

Question

Identify some recently formed alliances between competitors. What are the goals of the alliance? What brought them together? What have they done to ensure success? How are they doing now?

The recent alliance in the cellular phone industry between AT&T and Cingular Wireless means that now Cingular the largest wireless carrier, ahead of Verizon Wireless, with about "46 million subscribers." It also creates an effective consolidation between landline and cellular service that could ultimately allow the merged company to charge more for both, as AT&T is the largest landline provider and Cingular was the second largest cellular service provider. (CNN.com, 2004) But the fact that Kmart is buying Sears, Roebuck & Co. For $11 billion in a deal that will marry two of the nation's oldest retailers that "had trouble keeping up with the changes in American culture around them" may simply be a marrying of two ineffective organizations, with mutual and similar difficulties in competing with Wal-Mart. Also, given that "we don't want two separate cultures but to blend it into one great culture." Kmart Chairman Edward Lampert and the "idea is to make the stores more competitive while staying focused on the customer," does not take into consideration that part of the problem was that both stores now seem to lack a specific culture and a specific consumer base. Because Sears and Kmart did not differentiate themselves from the competition, then Wal-Mart came along with its great service and low-prices and "other retailers started to innovate more with products and service. Sears and Kmart simply trudged along and thought that was good enough," she said. (Bhatnagar, 2004)

PART III

INSTRUCTIONS

The following Decentralization Worksheet contains some observations on decentralizing. As you review each of the statements, provide an example that illustrates why this statement is important and related problems and benefits of the situation or condition indicated in the statement. SELECT ANY 2 Decentralization Worksheet: A large number of factors determine the extent to which a manager should decentralize. Clearly, anything that increases a manager's workload creates pressure for decentralization because only a single person can accomplish a finite level of work. As with many facets of management, there are advantages and disadvantages to decentralization.

Question

The greater the diversity of products, the greater the decentralization.

An organization, such as a national supermarket chain, that sells a diversity of products will benefit from decentralization because decentralization allows local and regional managers to tailor the selection of goods to the specific market -- and also prevents a stocking up of goods not desired by that market, but desirable perhaps in other regions.

Question

The larger the size of the organization, the more the decentralization.

This principle seems like a no brainer -- until one encounters a 'control freak' manager in a large organization, which underlines this principle all to starkly, when different responsibilities are not delegated properly, and not enough attention is given to these tasks. A small, single proprietorship may require an intense knowledge of a specific local market. Because a small organization cannot sell at volume, it instead offers the customer a product or service that is customized and sold with a relatively high degree of attention. But a large organization, for instance, The New York Times, requires a decentralized environment because it fulfills a number of separate informative functions, with many employees performing different tasks that are often only tangentially related to one another.