Analysing the Case
Strategic problem statement
Following Trian Fund Management LP’s announcement of Tiffany’s undervaluation, Tiffany became challenged to re-examine ways of increasing its shareholder value.
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Tactical problem statement
Tiffany has prevented dilution of its brand name by limiting its sales growth, number of stores opened annually and not licensing the brand name to other entities (Hess 167). However, increasing its shareholder value means that the company needs to increase its presence in the market.
Identification of issues and symptoms
Case Exercise: Tiffany and Company (Tiffany)
Tiffany was a leader in luxury jewellery brand with $2.6 billion generated globally from sales. The company even reduced the number of stores it opened in the U.S. though it could open 45 stores. Exclusivity of its products protected them from dilution and while opening fewer stores prevented production of low quality products.
However, with Tiffany’s realisation that it had the potential to increase its shareholder value, the company was forced to consider two strategic moves to achieve this. Lloyd and Davis (par. 1) note that creation of shareholder value depends primarily on the growth of revenue and return on invested capital in surplus of capital cost.
This can be through opening more stores quickly or licensing the company’s brand to the Italian company. However, it is important for managers to avoid blindly seeking to improve their companies’ shareholder value as they may end up destroying these values (Rappaport, par. 1).
Symptom 1: With recognition of Tiffany as a major jewellery dealer in America, it believes that it can maintain its competitive edge even after increasing the number of its stores.
Issue 1: (Strength) Tiffany’s long history and achievements in the jewellery business gives it ability to easily expand its operations. The potential profitability of the expansion is guaranteed as Tiffany has numerous customers.
Tiffany has notable achievements that ensure that it is firmly positioned in its primary market. Companies that use the product concept as their guiding principle focus on high quality and innovative products to retain their customers (Kotler 11). Tiffany’s products of high quality have helped in ensuring customers remain loyal to the brand through time.
Symptom 2: The Italian company will help Tiffany to quickly sell its products to many customers while allowing Tiffany to save on logistics and warehousing.
Issue 2: (Threat) Tiffany may need to revise its operational strategies and management policies in order to conform to those of the Italian company.
Tiffany may be forced to review its management policies when it offers the Italian company license to its brand name. As noted by Sears, Glenn and Richard (246), such a network structure is likely to complicate control and coordination of activities within the alliance. Tiffany’s products will also be diluted and Tiffany may lose its ability to regulate its commodity prices.
Symptom 3: Tiffany has a low employee turnover rate and employee-satisfaction rates are also high.
Issue 3: (Opportunity) High employee-satisfaction rates and low employee turnover rate ensures that Tiffany is stable and able to continue producing high-quality products.
The commitment of Tiffany’s employees to the company gives it the ability to easily obtain employees to serve in the additional stores. This will ensure that Tiffany experiences minimum interruptions in operations.
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Categorising the issues in order of importance (Long-term/Short-term)
The new partnership with the Italian company will force Tiffany to review its operational and management strategies: (issue 2)
(Partnership with the new company will result in disruptions in operations and management of activities within Tiffany. As noted by Hess and Liedtka (65), it is difficult to maintain a sense of purpose and team culture while welcoming divergent views. Such divergent views are expected in the partnership between Tiffany and the Italian company).
Tiffany has a strong brand name and wide recognition: (issue 1)
(Tiffany has a long history as a dealer in jewellery with notable accomplishments. This gives it ability to expand and increase its shareholder value independently).
The high employee-satisfaction rates at Tiffany ensures that the company is stable: (issue 4)
(Stability in Tiffany gives it ability to expand is operations without external assistance as Tiffany has enough capital and an experienced workforce needed for the expansion).
Setting the goals or Objectives
To increase the shareholder value by expanding Tiffany’s operations through opening more stores quickly while maintaining the company’s mission of enriching lives of its customers through the creation of memorable objects of extraordinary quality.
On Issue 1
Alternative 1: Tiffany may continue to focus on its market segmentation and maintaining the exclusivity of its products by not expanding.
Alternative 2: Tiffany may choose to expand independently by quickly adding a number of its stores.
On Issue 2
Alternative 1: Tiffany may change its strategies to conform to those of the Italian company.
Alternative 2: Tiffany may compel the Italian company to realign its strategies to conform to Tiffany’s own.
On Issue 3
Alternative 1: Tiffany should increase the number of its stores while relying on its committed employees for manpower.
Alternative 2: Tiffany should partner with the Italian company and use some of its current employees to serve in stores owned by the Italian company.
Tiffany should consider increasing its number of stores quickly in order to improve its shareholder value while maintaining its vertical integration strategy that has enabled it to retain its competitive edge.
Alternative solution proposals
Tiffany should increase its number of stores and use its current employees to serve in new stores in senior positions while filling any remaining vacancies with new employees.
Hess, Edward D. and Jeanne Liedtka. The Physics of Business Growth: Mindsets, System, and Processes. 2012. Print.
Hess, Edward. The Road to Organic Growth: How Great Companies Consistently Grow Marketshare from Within. New York: McGraw-Hill, 2007. Print.
Kotler, Philip. Marketing Management, Millennium Edition. n.d. Web.
Lloyd, W. James and Davis E. Laureen. Building Long-Term Value: Objective financial analysis focuses clients on business revenue growth. November 2007. Web.
Rappaport, Alfred. Ten Ways to Create Shareholder Value. September 2006. Web.
Sears, S K, Glenn A. Sears, and Richard H. Clough. Construction Project Management: A Practical Guide to Field Construction Management. New York: John Wiley & Sons, Inc., 2010. Print.