Project Management Failure Essay Example

Project Management Failure Paper PROJECT MANAGEMENT FAILURE: MAIN CAUSES by Soraya J. NetoAlvarez A Graduate Research Report Submitted for INSS 690 In Partial Fulfillment of the Requirements of the Degree of Master of Science in Management Information Systems ` Bowie State University Maryland in Europe March 2003 TABLE OF CONTENTS Page ABSTRACT LIST OF CHARTS AND TABLES CHAPTER I LITERATURE REVIEW Understanding Failure The Systems Failure Method II METHODOLOGY Sample Selection Procedure Limitations III PROJECT MANAGER (PM) CHALLENGES Managing People The Organizational Challenge Lack of Resources Lack of Clear Vision and Objectives Lack of Training Project Size Lack of User Involvement IV ANALYSIS AND DISCUSSION V CONCLUSION RERERENCES APPENDICES A. Interview Protocol 1 1,2 2 3 3 3 4 5 5,6 7,8 9 9,10 10,11 11,12 12,13 13-15 16 17 18 18 iii iv II ABSTRACT In the business world, â€Å"problems† can be looked as opportunities to improve the processes that contribute to business objectives. Information Systems and Technology (IS/IT) play a very important role in the daily operations of most businesses; hence, the development of such systems has become very important. There are well known models designed to guide Project Managers throughout the development and successful completion of these projects. However, many IS/IT projects continue being reported as â€Å"failures†. We will write a custom essay sample on Project Management Failure specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Project Management Failure specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Project Management Failure specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Studies suggest that a great deal of responsibility lies on Project Managers who need to focus on their interpersonal skills to get people to accomplish the work. Nevertheless, technical skills play a very important role in project development; learning from hard lessons can avoid repeating mistakes as well as developing tools for analyzing, predicting, and taking actions to prevent failure. III LIST OF CHARTS AND TABLES Page Chart 1 – Major Causes of Project Failure Chart 2 – General Dynamics Partial Organizational Structure Chart 3 – Success by Project Size Table 1 – Common Causes for Project Failure 6 8 12 13 IV CHAPTER ONE LITERATURE REVIEW Information systems projects continue to fail at an alarming rate, according to a 2001 Standish Group study; only 16% of all projects are fully successful, 84% fail. Failed IT projects cost US companies an estimated $145 Billion per year causing serious business problems. Many research studies have been conducted to determine the reasons for project management failure. Project Managers (PMs) are usually held responsible for the success or failure of their projects; therefore, most studies revolve around PMs skills. The development and design of a project requires skills that range from soft people skills to sophisticated technical skills. This study looks at the main reasons for project failure, and analyzes whether they pertain to soft or hard skills. Before discussing the reason for project failure, it is important to define â€Å"failure† in the context of project management. Understanding Failure Failure does not always have to be negative; it can be a positive experience if the procedures involved in the failure are analyzed and corrected. If one does something always right, there is no opportunity for learning. Failure gives opportunity for learning from previous mistakes; therefore, improving the decision making process. â€Å"When one does something right, one only confirms what is already known: how to do it. A mistake is an indicator of a gap in one’s knowledge. Learning takes place when a mistake is identified, its procedures are identified and it is corrected† (Ackoff 1994). The idea is to take advantage of the failure and turn the negative feeling around by analyzing what went wrong and 1 correcting it for future times. In project management, a project is onsidered â€Å"failure† when results don’t match initial objectives; common reasons for project failure are budget overruns and time overruns. Understanding why projects are not completed on time and/or go over budget can help correct the problem. For instance, a recent study conducted by Spikes Cavell (Lytinen 1999) shows that a successful practice to overcome time overruns is implementing meeting miles tones. Analyzing failure is not always that intuitive, so PMs are starting to apply the system failures method to information systems analysis to prevent project failures. The Systems Failure Method The aim of the Failures Method is to investigate some identified failure to learn what aspects of the situation may have led to the failure occurring. The investigation consists of comparing â€Å"ideal† models against the real-life failure situation. This comparison is expected to reveal discrepancies between the two, highlighting areas of concern. These discrepancies can then be interpreted in relation to the failure situation and conclusions can be drawn. (West 1998) Investigating whether failures can be avoided, or reduced by some degree, is certainly a worthwhile effort. Studies suggest that most IS project disasters are avoidable (Heekens 2002). Many times, warning signals occur long before an information systems project has begun to fail. History has shown that software projects are far more likely to be successful if they are highly focused and built upon well-understood technology (Heekens 2002). 2 CHAPTER TWO METHODOLOGY This study was designed to identify the main causes for project failure. Interviews with Project Managers from General Dynamics Systems Integration Management Office (SIMO) were conducted. Data gathered from interviews was analyzed and corroborated with previous surveys and case studies on project failure. Sample Selection In order to find out common reasons for IS/IT projects failure, Project Managers from the SIMO office were interviewed. Participants were composed from a diverse socioeconomic background including Black, Hispanic, and White. Their ages ranged from 30 – 55 years old. Each participant had at least five or more year’s experience in his or her profession. Procedure The interviews took place during August – September 2002. The interviews were conducted in person during lunch breaks. Project Managers were given a survey (shown in Appendix A), and asked to list the main reasons for project management failure. Later individual appointments were scheduled to discuss answers in more detail. Results were then combined and analyzed. A table containing the most frequent causes for project failure was produced (See Table 1 Discussion Section). The table serves as a discussion tool, and it shows the type of skills (soft or hard) related to the reason for failure. Common reasons for project management failure are discussed and analyzed in detail. Discussion points are reinforced with statistical data. Limitations Unfortunately General Dynamics does not require Project Managers to have any type of formal Project Management training, so most PMs have little knowledge of Project development techniques and models. General Dynamics’ main customer is the US Armed Forces; therefore some requirements are unique. A larger sample is required to include other companies that have customers from different industries. Farther research could include companies from other countries as well. 4 CHAPTER THREE PROJECT MANAGER (PM) CHALLENGES Managing people Managing a project is not just about accomplishing tasks, but getting people to accomplish the work. One of the major challenges for a Project Manager (PM) is managing people. Most Project Managers have the technical skills required to manage a particular project, but not everyone has the interpersonal skills required to manage people successfully. A PM has to communicate with people inside and outside the organization, and be able to speak their languages. When dealing with top management and stakeholders, the PM should address how the system will contribute to business objectives, and highlight initial investment and return on investments figures. They want to hear the project in terms of profits to the company. Their reason for launching a project is to make money or to save money, so the PM should focus on the financial aspect of the project. When dealing with team members, the PM is esponsible for fostering teamwork. Usually the team consists of people from different departments who have their own priorities, and departmental interests. The PM faces the challenge of getting team members to share a common objective and focus on what is best for the project itself and not each individual department. For a project to be successful, everyone should pull in the same direction and towards the same vision. According to Fortune (1 997) â€Å"You don’t get people to buy into a vision, you get them to enroll†. Once again, it is on the 5 PM to inspire team members to take ownership of the project and do their best to lead the project to a successful completion. When dealing with engineers, scientists, and computer experts, it is crucial for the PM to remain focused on the business objectives. It is very easy to lean towards the state of the art technology, even if it does not add value to the business. The PM has to look at the system technology from the business perspective. If it does not contribute to the efficiency of business processes, there is no need to spend the extra money. In 1998, the French computer manufacturer and systems integrator, BULL, contracted an independent research company to conduct a survey in the UK to identify the major causes of IT project failure in the finance sector (Linberg 1999). Interestingly enough the survey reveals the major causes of project failure during the lifecycle of the project are a breakdown in communications (57%), a lack of planning (39%) and poor quality control (35%). See Chart 1. Chart 1 6 The Organizational Challenge Most companies have some type of hierarchical organization, which may undermine the authority of Project Managers (PMs). For instance, having PMs report to a section leader, who is under a team chief who reports to a department manager who also reports to someone higher, may delay communication among team members from different departments. Ideally, PMs should be able to control the company’s resources needed to accomplish their projects, and directly supervise their teams. Unfortunately, in the real world PMs have little or no authority, so they have to rely on the official process for communicating their needs across the organization. This cross-organizational communication can result in delaying project tasks, which can ultimately bring the project to failure. The field study conducted in the General Dynamics Systems Integration Management Office (SIMO), Project Managers were asked to give the most common reasons for project failure. Survey results indicated that 75 percent of Project Managers are unhappy with the current structure of the company, and list it as the top reason for not accomplishing their projects on time. General Dynamics is broken down into departments; each department has its own manager, and the department is further broken down into sections managed by section supervisors. See Chart 2. 7 Site Manager IT Manager Engineers Dept. Training Division Personnel Manager Acquisitions Systems Integration Office Chief Project Manager Project Manager Project Manager Project Manager Chart 2 General Dynamics Partial Organization Structure The System Integration Management Office (SIMO) has a team chief who is responsible for communicating with other sections and departments. When interviewed Project Managers pointed out the inefficiency of going through the team chief to coordinate tasks with other departments. As Project Managers, they believe that a flat organization would be the ideal because they would have the authority to contact other key players themselves. By coordinating the tasks themselves, they increase the accuracy of the information, and make changes in the schedule as needed. More than 50 percent of General Dynamics Project Managers attribute the success of their projects to the good personal relationships at work. In most cases, they don’t follow official communication channels. They establish good relationships with people from other departments, and approach them directly whenever they need to get the job done. This shows the importance of good interpersonal skills, but also reiterates the need for an organization structure that facilitates communication across the company. Lack of Resources Project managers face the challenge of coordinating the use of valuable resources when other people seem to have higher priorities. Not having control 8 ver resources can cause the project to fall behind schedule and subsequently to fail. A survey conducted by IT Cortex (Lytinen 1999), on â€Å"Reasons for Project Impaired Factors† conducted among 365 IT managers from companies of various size and in various economic sectors showed that lack of resources is one of the main reasons for project failure followed by lack of executive support. It is interesting to point out that lack of IT manag ement and technology illiteracy was at the bottom of the list, showing soft skills superceding technical skills. When competing for resources it is important to document the days and times resources are available, and try to accommodate the needs of the project during these times. Organizational skills play a very important role in managing resources successfully. Lack of Clear Vision and Objectives Not understanding the true needs of the company can prompt supervisors and project mangers to jump to a quick solution, decreasing the chances for selecting the best solution. Solution jumping can take place in the department where the problem/opportunity is identified, or by the Project Manager himself/herself. An example of a department jumping-solution is when instead of describing the problem, a solution is drafted and turned into a project requirement. For instance in a manufacturing company, the head of the production department requests to start up a project for the creation of an additional production line to meet customers’ demands. Once the PM starts identifying the true needs, he/she realizes that the real problem lies in the existing production lines that are not performing at optimal levels. In this case, 9 the real need and perhaps the best solution to the problem is to focus on the other production lines first. Sometimes the PM feels the pressure to get the project started right away without understanding the true needs of the company. Without this true understanding, it is very difficult to select the best solution to the problem. General Dynamics ensures its PM’s are familiar with the company’s needs by holding weekly meetings to discuss and debate new and ongoing projects, increasing the odds for selecting the best solution, and keeping projects on schedule (Heekens 2002). Banco Itamarati, a privately held Brazilian bank, attributes the success of its IT project to clear vision and documented specific objectives. The company produced an annual net profit growth of 51% and moved from 47the to 15th place in the Brazilian banking industry (West 1998). Lack of Training – The â€Å"Accidental Project Manager† Phenomenon Researchers at Athabasca University’s Centre for Innovative Management in Alberta, Canada, conducted a global online study on project failure. As part of the study, a large-scale online survey was posted to key websites on the Internet and distributed via e-mail to 40,000 executives, project personnel, and consultants involved in managing or directing public and private sector projects. The researchers received 3,156 responses (7. % response rate). Results indicated that project failure dominates all sectors, and more than half of PMs have little or no formal training to deal with the complexities of today’s projects. (Res 2001) In addition, the study indicated that company executives continue to underfund project management; they view the job of a Proje ct Management as 10 an add-on to an employee’s job description, thus creating â€Å"Accidental Project Managers. † Furthermore, 75 percent reported that projects consistently came in late and over budget, and that management tools, techniques, and methodologies were rarely applied to projects. Project Size A research study conducted by the Standish Group in shows that small projects are more likely to succeed than large projects. Typically, as project size increases, cost increases as well, and its chances of success decreases. Extra features and functions may decrease the likelihood of success. Results show that projects costing less than $750 K had a success rate of 55% while projects budgeted over $6M were successful only 8% of the time (See Chart 3). Some IS projects should be segmented into smaller subprojects to increase the likelihood of success. Pilots can be used in this case as relatively inexpensive methods to provide a â€Å"proof of concept† for an application before additional resources are allocated. This is especially useful when it comes to the use of new technology. One of the biggest mistakes a company can make is using a new technology on a highly visible and large project. A $100 million project should not be started with any technology unless a $10 million project has used it first, and a $10 million project should not be conducted until a $1million project has been completed (Glass 1998). New technology is notorious for having software bugs. Big projects should be broken down into small, low visibility projects, where problems are easier to address before it is unleashed on a larger project. 11 Success by Project Size Over $10M $6M to $10M $3M to $6M $1. 5M to $3M $750K to $ 1. 5M Less than $750K 0% 10% 20% 30% 40% 50% 0% 8% 15% 25% 33% 55% 60% Chart 3 Lack of User Involvement A Standish Group survey (2001) shows user involvement as the number one reason for successful projects followed by executive management support, and a clear statement of requirements. One of the participants in this survey was the IT executive manager from a Hyatt Hotel. Hyatt implemented a system that allows customers to dial from a cellular airplane telephone at 35,000 feet, and check into your Hyatt room, schedule the courtesy bus for pick up, and have the keys to the room waiting at the express desk. This new reservation system was ahead of schedule, under budget, with extra features. Hyatt had all the right ingredients for success starting with user involvement, management support, clear requirements, proper planning, and small project milestones. 12 CHAPTER FOUR ANALYSIS AND DISCUSSION The results of compiling the main reasons for project failure from different surveys and case studies are hown in Table 1. Although no percentages are shown, the reasons are prioritized from most common to less common. It is also indicated whether they pertain to soft skills or technical knowledge. As shown in Table 1, the top two most common reasons for failure pertain to soft skills (lack of user involvement, and lack of management support), but there is also a good balance of soft skills and technical knowledge. This shows that both are important, and one cannot focus just on the soft skills or the technical knowledge. Managing projects is not all science. Project management involves working with people, and getting people to accomplish the work. Common Reasons for Failure Lack of User Involvement Organizational Structure/Lack of Mgmt Support Lack of clear vision Unable to Manage Team Unable to Cope with Project Size Lack of Training Lack of Resources X X X X X Soft Skills X X X Technical Knowledge Table 1 Common Causes for Project Failure From Most Common to Less Common 13 Lack of user involvement deals mainly with soft skills because the Project Manager needs to schedule appointments to interview users, and get them to buy into the project. Sometimes project mangers can face resistance from users who do not like change. PMs have to use their interpersonal skills to assure users that they will benefit from the new system. In addition, it is important to make the users feel they are part of the project and their input is highly valuable for the overall success of the project. Organizational structure/lack of management support also deals with soft skills because Project Managers need to adjust to the company structure, and be able to find effective channels of communication. In order to get all the key players involved, project mangers need top management support to schedule meetings, and to use the company’s resources. Lack of clear vision deals more with critical and analytical skills; the Project Manager is expected to understand project requirements, and convey these to the rest of the team. It is important to grasp the true needs of the company and to ensure that the project meets the business objectives. Unable to manage team deals with soft skills since Project Managers are in charge of getting the teams together and motivating every member to excel within the project. Unable to cope with project size deals with technical knowledge and the ability to break complicated tasks into smaller manageable modules. Complex projects can be compared to math problems; solving complicated math problems requires breaking the problem down into small pieces, and solving it step-by-step. 14 Lack of training deals mainly with technical knowledge; Project Managers need to understand different models used for developing and designing systems; recurrent training is also important due to fast technological advances; knowledge of management tools is necessary to facilitate planning and tracking of project tasks. Lack of resources can require both soft skills and knowledge of the systems. Competing for resources requires coordination with other users. This coordination can be accomplished by communicating the project needs well in advance. Scheduling resources also requires technical knowledge to know which resources are needed and when they can afford to go offline without inconveniencing other users. 15 CHAPTER FIVE CONCLUSION A Project Manager is like a bridge that links key pieces together, and in order to reach pieces effectively he/she needs to have a balance of soft skills and technical knowledge. Some pieces need to be handled with soft skills, especially those that depend heavily on people to accomplish the work. Other pieces need to be addressed logically and precisely, such as instructions given to programmers and engineers for system implementation. Project Managers need to be able to learn quickly and become familiar with the needs of the company and the business objectives. It is important for a Project Manager to keep a positive attitude even when projects fail or are cancelled. Failure should be seen as an opportunity to learn what went wrong and could go wrong again if not corrected. Project failure can ultimately lead to success if it provides insight, and encourages learning. According to an article in the Journal of Systems and Software (Lingberg 1999), struggle and challenge are part of the learning process. Many organizations have used an IS project failure as a method to improve the next version of software or on a completely different project. The key point to be made with this notion is: if you lose with an IS project, do not lose the lesson. Not every IS failure can be labeled as a â€Å"failure†, especially if lessons can be learned and applied. 6 REFERENCES Ackoff, R. L. , 1994, It’s a Mistake! Systems Practice, 7, 3-7. Fortune, J. , Peters, G. (1997). Learning from Failure: The Systems Approach John Wiley Sons, Inc. Heerkens, G. R. (2002). Project Management. New York: McGraw-Hill Lytinen, K. Robey, D. (1999). Learning Failure in Information Systems Development: Info Systems J. 9, 85-101 Linberg, K. (1999). Software Developer Perception s about Software Project Failure: a case study: Journal of Systems and Software, 49(2-3), 177-192 Parker, W. (2003). WorkStart Net: The Eight Keys to Project Management Failure. Retrieved March 2003, from WorkStar Web site: http://www. workstar. net/library/pm1. htm Results of World’s Largest Study on Project Management: Athabasca University Study Indicates High Rate on Project Failure and Accidental Managers in Today’s Organizations. (2001). Retrieved December 15, 2002, from Athabasca University Web site: http://www. athabascau. ca/media/mba_pm. html Ross, J. , Weill, P. (2002). Six IT Decisions Your IT People Shouldn’t Make: Harvard Business Review, 80(11), 85-91. Satzinger J. , Jackson, R. , Burd S. (2000). Systems Analysis and Design in a Changing World. Course Technology MA. Spot Light on PM Training: Global Study Cites Problem of â€Å"Accidental† Managers. (2001, December). PM Network: Project Manager, 15 (12), 8 The Standish Group Report Retrieved December 2002, from http://www. scs. carleton. ca/~beau/PM/Standish-Report. html West, D. (1998) The systems Failure Method and its Potential Use in Information Systems Analysis: Computing and Information Systems, 5, 135-38. Wiegers, K. (2003). Know Your Enemy: Software Risk Management. 1-9. 17 Appendix A Interview Protocol Project: Reasons for IS/IT Project Failure Time of Interview: Date: Interviewer: Interviewee: (Description of Project) Questions: 1. What is your professional background as Project Manager? 2. What is your educational background? 3. How many projects are you currently managing? 4. List the project management models/methods that you use to manage your projects 5. List the major challenges that you face as Project Manager to successfully complete your project. 18

Vermont Teddy Bear Case Essay Example

Vermont Teddy Bear Case Essay Example Vermont Teddy Bear Case Essay Vermont Teddy Bear Case Essay Although Vermont Teddy Bear is a company with a rich track record in the business of last-minute gifts, its mission statement lacked its basic goals and philosophies that aim to shape its strategic posture. Vermonts mission statement clearly speaks to someone who is well acquainted with what the company does and what it sells, which is in my opinion a crucial point that the company missed when they addressed its customers. The following points provide an insight on what went wrong when Vermont decided to formulate its mission statement: * The Basic Product the company sells: Vermonts mission statement clearly failed to mention the type of product they sell. By defining the product the company simply distinguishes its offered products from competitive products of similar nature provided by other competitors in the market. * The companys targeted customers In this element, the company mentions who are its customers or potential customers. What will it do to serve them and how will its customers find this company different from the other companies or competitors who provide similar products in the market. Although Vermonts mission statement might have implied that it is currently targeting American customers through :The Vermont Teddy Bear brand represents the rich heritage of the Great American Teddy Bear begun in 1902. , yet this contradicts with the companys current plan in which it intends to exploit international markets, in other words, the company should revise its statement to include potential customers too. * The Technology applied: By defining technology, the company tells its current technology that it uses in making its products i. . whether state of the art technology or hand-made technology. It also tells about the unique ways in which its products are technologically more advanced or distinguished then their alternates. Nevertheless, it is worth noting that the word craftsmanship found in the companys mission statement might tell that the companys products are hand-made, which distinguishes it from other players in the industry, given the fact that most stuffed toys to day are manufactured. The Companys concern for survival, growth and profitability: Vermont failed to fine the means it seeks to survive in the longer run given the fallback they are currently going through. It not merely lists them out but also defines the logic behind them and how will the company strive to achieve them; these goals serve as economic indicators for the companys performance, and hence indicates how far the company is from satisfying the principal claims and desires of its employees and stockholders. The Companys Philosophy: By defining philosophy, the company defines its way of working, its culture, its beliefs and how it sees work to be carried out. it is also an analytical way of defining the norms of which it runs. In my opinion, the companys mission statement had covered the companys creed through the following: We will strive to wholesomely entertain our guests while consistently exceeding our external and internal customer service expectations. * Concern for public image Concern for public image is a wide term that includes not only the corporate social responsibility but the overall impact of the actions taken by the company on its image, which in my opinion was totally dropped when formulating Vermonts mission statement. * Companys self concept By defining the self concept, the company shows the outside world its core strengths and the place it sees itself in the future. When reviewing Vermonts mission statement, it is clearly evident that the statement failed to express the companys core strengths in terms of the entrepreneurship capabilities and a robust distribution channels. In light of what was mentioned above, I suggest that Vermont should revisit its mission statement, the following statement will help the BOD in their plans for the company: Become number one instant gift solution in the USA in the next 20 years. We design and manufacture the best teddy bears in America. We satisfy customer needs through product differentiation, we offer exclusive hand-made teddy bears to premium customers as well as providing convenient products to the other customers. Speed and easiness of delivery of our products will be respected along with premium quality. Monthly Measuring customer satisfaction will be our main tool for maintaining our market positioning and for our continuous development for our brand and products. While achieving our mission in owning a profitable business, we will strive to being ethically, legally, and environmentally responsible while remaining fiscally sound. Vermonts external environment consists of three components: its operating, industry and remote environment. In these three environments, there is a chance that one of its external environments may change. All of these environmental sectors affect the companys operations both on the local and international level, and its very possible for change to occur (as witnessed throughout the case study). Operating Environment: Competitors of Vermont Teddy Bear could be subdivided into three categories: * Major plush doll manufacturers such as Mattel and Hasbro were considered competition in this sub segment of the toy industry. * Other bear manufacturers including Steiff of Germany, Dakin, Applause, Fiesta, North American Bear, and Gund, the leading market of toy bears. Variety of other special occasions greetings such as flowers, candy, balloons, cakes and other gift items that could be ordered by phone for special occasions and delivered next day. As for Labor, and given the massive production the company is required to undertake to meet its customers needs especially in special occasions such as Christmas, Valentines Day amp; Mothers Day , the company heavily relied on outsourced home worker s who performed production functions at their homes and hence were treated as independent contractors. Although these home workers/independent contractors allowed the company flexibility in meeting heavy demand as mentioned earlier which allowed them in scheduling their hours of work, home workers were free to reject or accept any work offered by the company which might make the company vulnerable to failure in meeting its customers heavy demand especially in high season sales. The company maintains a solid HR system through a strong built bear culture among employees. The companys manpower do not belong to any unions which eliminates any Labor issues. n the credit side I believe that the company does not face any problem with external financing; the company has two sources of financing, equity through issuance of shares since it is a traded company in the New York stock exchange market, in addition to debt and leasing which can be provided through commercial banks and leasing companies, which in my opinion is not a viable point for Vermont as it already consumed most of its credit li mits lately, comparing with its competitors who had greater financial resources. Historically, the companys focus had been to design and manufacture the best teddy bear made in America, using American materials. This philosophy was modified significantly in 1998 with the companys decision to explore the offshore sourcing of materials and manufacturing alternatives in an effort to lower the companys cost of goods sold and to broaden its available sources of supply, in my opinion such change would diverse the companys dependence on American supplies or raw material, now that it has a wide pool of international suppliers which will give the company a significant bargaining power in terms of cost and quality. Although many teddy bear producers define their product as toy and marketed solely to children. The company marketed its bears as an attractive gift or collectible for both children and adults which enabled the company to penetrate a wide-ranged customer pool, including children, young and old people whether males or females. If the company considers going globally, the company might face problems when addressing global customers, such Anti-Americans who might avoid buying the companys products knowing that it is an American product, especially that the companys competitive advantage stems from their origin, being one of the earliest producers of teddy bears in America. Industry Environment: Barriers to entry into this industry is there, evidenced by the challenges that Vermont along with the other current players face in the market, such as economies of scale, product differentiation, capital requirements and access to distribution channels. Given that both the stuffed toys and last-minute gifts markets are already saturated, I believe that the possibility of entry of a new player to the said markets is quite difficult, unless this new player intends to acquire an existing company to capitalize on its position in the market. For Vermont and as discussed earlier, the company had recently shifted to rely on various suppliers from local markets and different countries in its raw material in an attempt to reduce its costs, yet it was implied that it still relies on an American supplier-who happened to be the only eye maker left in America-in attempt to produce the ears with domestic materials, this might give this supplier some bargaining power to exert on Vermont. Last minute gift customers normally lack the power to force down prices or play competitors off against each other, this is mainly attributable to that Vermonts industry is a fragmented one, and last minute shoppers are ready to pay anything to acquire a gift due to time constraints which disable them to consider or make comparison with other competitors products; they will simply buy the first thing their eyes lie on to buy that gift especially in special occasions and events. Capitalizing on what was said earlier, Vermonts Teddy Bear as a product had several substitutes including toy bears, stuffed dolls or animals, flowers, candy, balloons, cakes and other gift items which in my opinion deserve the most attention strategically. To my opinion, and given that the Industrys competitors are numerous and that the industry growth is slow, Vermont is facing an intense rivalry from its competitors which the company should focus on strategically in the future. Remote Environment: The remote environment is what originates beyond the daily operations of Vermont. The remote environment is made up of five factors that are not influenced by a single company. These factors are economic, social, political, technological and ecological. Although these factors cannot be affected by Vermont, they can definitely effect the operations of the company. These must be all considered by the company when working with the market. Over the next twenty years, there are several changes that might take place in the remote environment. Since technology is not an important factor in this industry the company might disregard it when formulating its strategy. Political factors are quite stable on the local side yet if the company considers going global it must take these factors into consideration, for example if changes occurred in laws and regulations with respect to Foreign Direct Investment (FDI), they must make changes to meet Political standards. Ecological factors also might cause several issues; although the companys manufacturing practices are environmentally sound, other factors might be an issue (for example global warming) given the fact that the company owns and operate a factory at which it produces its products, then the energy used by the company to produce its products must e modified in order to meet ecological standards. To be sustaining in the market, Vermont should encourage the knowledge of the internal environment that affects its business. There are many internal factors that impact Vermonts performance; these factors constitutes of the companys competitively important resources and capabilities. Unfortunately reso urces whether tangible or intangible are scarce by nature and it will be a great challenge for the company to manage their resources in order to gain the competitive advantage. Tangible Assets: The company operates and owns a fully integrated facilities including retail stores, manufacturing and distribution facilities in a 62,000 square-foot building on 57 acres that the company owns; * The manufacturing/production facilities included a state of the art packing and shipping equipment; * The companys call centers had state-of-the art technologies including PC terminals and very high tech telephone switching equipment that allowed the company to handle significant call volume; * The company installed a new telephone system, which improved its telemarketing operations and was designed to accommodate future growth in telephone call volume; * The company had a high-tech shipping system, including state-of-the art multicarrier software so that if a major carrier like UPS went on strike, it could immediately make adjustments; * In 1998 the company succeeded to secure a source of finance amounting $600,000 (in the form of equity investment that was injected by Shepherd Group) which will provide working capital for the company to pursue growth in the Bear-Gram channel and to maximize the benefits of importing raw material; * The company had launched an extensive website including pictures of the product in 1997 where its customers are eligible to place their orders online, which was part of the companys computer network of approximately 250 workstations that linked order entry with sales and accounting systems. Intangible Assets: * The companys name in combinatio n with its original logo was a registered trademark in the United States including The Vermont Teddy Bear Company, Bear Gram, Teddy Bear Gram and Make-A-Friend-For Life; * It owned the registered trademark Vermont Teddy Bear in Japan; * The company claimed copyright, service mark, or trademark protection for its teddy bear designs, its marketing slogans, and its advertising copy and promotional literature; Organizational Capabilities: * The companys manufacturing practices were environmentally sound. The company sought to use the best available materials for its bears; * The companys products were sold with a Guarantee for Life under which the company undertakes to repair or replace any damaged or defective bear at any time; * The companys products were designed in such way to a certain event or occasions, the company even provided outfits to individualize the customers bears or to emphasize certain relevant characteristics of the receiver; * The company was primarily know for its Bear-Gram delivery service, where customers could send the gift of a Vermont Teddy Bear by placing an order through the companys 800 number or online, providing its customers with an instant and spontaneous solution for the perfect gift especial in events and special occasions; * Since its inception in the 80s, the companys main focus was to design and manufacture the best teddy bears made in America, using American materials and labor, which helped the company to build up a strong and extensive custome r base; * The companys decision to explore the offshore sourcing of materials was a brilliant and a dynamic solution for lowering the companys cost of goods sold and reducing the suppliers power over the company; * The company has a wide range of products that suits both premium and regular customers; it has its handcrafted 15-inch classic teddy bears as well as its manufactured bears, in addition to other items related to teddy bears such as clothing, jewelry and accessory ornaments; * The company strove to provide rapid response to its customer orders and complaints. It believed that as a result of the quality of its products and service, it had established a loyal customer base; The value chain analysis (demonstrated below) aim at increasing customer satisfaction and managing cost effectively; it is a systematic approach to examining the development of competitive advantage, it comprises both primary and support activities: Source: pcwin. com Primary activities of Value Chain Analysis are directly concerned with the production or delivery of a product and consist of: * Inbound Logistics: Vermonts manufacturing premises included a state-of-the-art packing and shipping equipment, in addition the company also had a three-year lease on 10,000 square foot of inventory space at a separate location in Shelburne. Exploiting offshore markets for the sourcing of its materials provided the company with a wider base of suppliers which prevented the company from dependence risks; * Operations: despite the companys 1998 move to the offshore sourcing of raw materials and which implied a significant departure from the companys historical position as an American manufacturer who uses almost exclusively American materials, the companys products were still environmentally sound; the company sought to use the best available materials for its bears. The company produced two type of products; its handcrafted 15-inch classic teddy bear for those customers who are interested in an American made product and its manufactured event or special occasion-customized teddy bears for the rest of its customers, in addition to selling items related to its teddy bears; * Outbound Logistics: The company was known for its Bear-Gram delivery services, which enabled the company to provide instant delivery services (either by air or ground delivery services) to its customers throughout the different states of America as well as outside customers such as Canada through a carrier such as UPS. In addition, the company had a high-tech shipping system, including state-of-the-art multicarrier software so that if a major carrier like UPS went on strike, it could immediately make adjustments; * Marketing and Sales: The companys extensive computer network in addition to its new telephone system enabled the company to expand its customer base not only in Ver mont but throughout the rest of the states and the world and provide rapid response to its customer orders which in turn; * Service: The company sought to respond promptly to customer complaints. Each bear was sold with a Guarantee for Life under which the company ndertakes to repair or replace any damaged or defective bear at any time; These primary activities are supported by secondary activities which help to improve the efficiency and effectiveness of the primary activities of the company and consist of: * Firms Infrastructure: it can be subdivided into three main categories: * Organizational Structure: The companys Board members and Executive Officers had solid experience in different fields including marketing, finance amp; investment; * System of Planning Finance: The company managed to secure a $3. 5 Million commercial loan to partially finance its new facility, later the company completed a sale-leaseback transaction involving its factory, this financing replace the company s mortgage and line of credit. The company had also signed a letter of intent with a potential investor for a proposed $600,000 equity investment; the company intends to direct the proceeds of the said transaction to financing its working capital needs to pursue growth in the Bear-Gram channel and to maximize the benefits of importing raw materials; * Quality Control: The company strives to maintain its products environmental friendly and was safe for children. * Human Resource Management: * The company employed 181 individuals, none of them belonged to a union which provided the company with some sort of protection against strikes; * In order for the company to meet heavy demand at holiday periods such as Christmas, Valentines Day and Mothers Day, the company depended on independent contractors/home workers. * Technology Development: The manufacturing/production facilities included a state of the art packing and shipping equipment; * The companys call centers had state-of-the art technologies including PC termina ls and very high tech telephone switching equipment that allowed the company to handle significant call volume; * The company installed a new telephone system, which improved its telemarketing operations and was designed to accommodate future growth in telephone call volume; * The company had a high-tech shipping system, including state-of-the art multicarrier software so that if a major carrier like UPS went on strike, it could immediately make adjustments; * The company had launched an extensive website including pictures of the product in 1997 where its customers are eligible to place their orders online, which was part of the companys computer network of approximately 250 workstations that linked order entry with sales and accounting systems. * Procurement: * The most relevant long-term objectives for the company are as follows: * Competitive Position: the company always strives on keeping its position as a market leader backed by designing and manufacturing the best teddy bears made in America and represent an attractive gift or collectible for both children and adults; * Profitability: sustain and increase profitability by improving the Bear-gram services that is provided through either the internet or the phone which are designed to accommodate future growth in request volume; * Public Responsibility: the companys manufacturing practices respect the environmental aspects by using the best available materials for its bears. The company uses Differentiation-focus as a generic strategy illustrated in: * Using American-made materials in its products; * The company offers a life-time guarantee; * Easy order placement and prompt delivery; * Rapid response to its customer complaints. Grand strategies are applied through: * Product Development : The company diversified the spectrum of its products to include the following: * More than 100 different bear outfits to individualize the companys bears, to emphasize certain relevant characteristics, or to personalize bears for different occasions and events; * Using recycled Ben and Jerrys ice cream containers to make the bear joints movable, a feature associated with traditional, high quality teddy bears; * Selling items related to Teddy Bears; * Selling stuffed toys manufactured by other companies; * Changing the packaging structure to ensure damage-free products and lower courier services; * Turnaround Strategy: The company exercised the turnaround strategies to survive the following incidents: Incidents| Actions reflecting Turnaround Strategy| The companys expenses increased while sales growth did not offset this growth;| * Eliminate several unprofitable marketable ventures (such as its sponsorship to NASCAR circuit race car and driver); * Reduce General and Administrative exp enses; * Change of key management position;| * The company applied a new trademark name to broaden brand appeal and take advantage of national and international distribution opportunities; * Explore new opportunities for growth through opening new retail stores and expanding the catalog;| * Focus on Bear-Gram business to expand the companys distribution channels; * Shut down retail stores to reduce costs; * Change of key management position;|