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 unit of
PricwaterhouseCoopers. SC is the strategy thought leader in PwC. The engagement
partner in Consumer Products has come to SC to help develop a strategy for 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 conglomerate

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. The company has been
marginally profitable over the past ten years. Last year the company made a profit due
largely to an accounting change.

Although R&H only operates in the U.S., it owns several manufacturing and distribution
facilities around the world to support its production and distribution systems. 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 segments are:
Personal Hygiene, Consumer Tissue, Soaps and Detergents and Personal Care. Even
though the revenues are roughly evenly divided among all four market segments,
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 building a consumer
franchise through aggressive advertising and in-store merchandising 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 return 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 per year. With new products,
retailers are demanding slotting fees and ever-increasing promotional support. Product
managers are forced to achieve current product revenue and market share goals while
stimulating demand for new products. Many 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 consolidation, 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 dramatically; trade
promotion has risen to 40% of total marketing spending, consumer promotion 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 in 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 relationships over the
years. R&H traditionally had the best order fill rate in the business; however, recently
some of the efforts to reduce inventory has caused 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 Vice Presidents
represent Marketing, Sales, Finance, Manufacturing, Engineering and Human Resources.
The EVP of Finance has responsibility for financial reporting and analyses as well as
managing Procurement, Deployment, Scheduling and Logistics. All the market segment
managers report directly to the Executive Vice President of Marketing.

Much of the blame for the performance of the company over the last ten years fell on the
shoulders of the former president. It was whispered that he was from the "old school"
and could not change his ways. The new president of R&H, an American, joined the
company six months ago. He was the Executive Vice President of an important
European division of a sister company. The conglomerate has always 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 brilliant

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) that he has never
received a position of president, even though his name is mentioned every time an
opening appears.

Recently the vice chairperson of the conglomerate responsible for the group in which
R&H is a member, sat down with the R&H President and EVPs. The vice chairperson
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 event 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 billion dollars
a year. PwC assisted R&H in this study. All the EVPs agree that there are huge dollar
savings that can be achieved with efficiency improvements.

Venn believes that the supply chain (i.e., Procurement, Manufacturing, Deployment,
Scheduling, Logistics, and Warehousing) can become a strategic advantage for the
company if it can outperform its competitors. PwC studies have shown that
improvements cannot be made without the input or the support of all the functional 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 support
among the EVPs. Venn knows that whatever strategy is accepted needs to define the
roles of each of the EVPs and to provide an outlet for each EVP to demonstrate his and
her skills. He is also aware that the other EVPs are very conscious of the growth of
Venn's power. Each EVP will initiate a project with the assumption that the architect of
the solution to R&H's current situation will be in position for the next presidency.

The EVP of Human Resource has championed the need to implement a whole new way
of envisioning the company working together. She has envisioned a flatter organization
and has spent years developing studies with another leading consultancy to support her
vision. She has a strong supporter in the EVP of Sales. The present EVP of Sales was
originally from Human Resources. Her vision has always entailed 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 producing
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 also 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 eight years ago. If things
don't change in other areas, then things won't change in Manufacturing, other than the
inability to support the orders coming in.

The EVP of Marketing believes that a combination of re-structuring and acquisition is

needed. He wants to reduce the salesperson's role with the retailer and focus on
consumer spending behind a "high quality" message grounded in tangible product
benefits across all product segments. He wants to broaden the product mix with new
products from acquisition.

The Engagement

Venn has mentioned to Gary Forstman, the PwC engagement partner, that he is willing to
devote the necessary resources in his functional areas to prove out the right strategy to the
other EVPs. Venn has also indicated that the company is willing to devote significant
resources and capabilities to the right effort. "All the EVPs know," he said, "that there
will be whole-scale changes if the company 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 implement
solutions. Now we have an opportunity to really shine. The company is re-evaluating its
strategic position and has asked several consulting firms to talk to them." Grady
discussed the situation with ISS partner, Michael Hanley, and they 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, Grady 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 of where the company needs to go, how the parts fit together and
how they are going 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 is 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 myself with any questions. Okay,
talk to you soon.

Questions

1. What is your assessment of the present situation?

2. What are the key areas for change? Why do you believe so?

3. What do you envision your product to be in a week?

4. What type of additional information would you want?

5. What type of analysis do you believe needs to be performed?

6. Do you have an idea concerning the analytical structure?

7. What type of framework might you envision for this strategy?

8. What are the key elements you would include in designing a strategy?

9. What are the key elements you would include in implementing a strategy?

10. What is your assessment concerning R&H's ability to implement a strategy?

11. 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. How does Supply Chain effect the value of the company's brands?

15. What are the risks that the PwC team faces in this engagement?