Read the cases and answer the questions that follow. You should write your answers in this document, and answers should be between one half and one full page for each question.
- Times don’t seem to be much better to be in the oil business. Sure, there have been some bumps in the road the past few years—the tragic oil spill in the Gulf of Mexico and unstable prices and supply due to political situations. But there’s one piece of news that makes all those obstacles easier to deal with—profits are up, and not just a little bit either. Profits are positively soaring. Exxon announced that its earnings for the most recent quarter were up 69 percent from the previous year, to $10.65 billion. Royal Dutch Shell posted an increase of 30 percent to $6.29 billion, even while experiencing a 2.5 percent decrease in production, and Occidental Petroleum’s earnings jumped 46 percent to $1.55 billion.
Times certainly seem to be great, but there are many executives in your company who are pushing for big changes. Sure, they argue, revenues and earnings and profits are sky-high right now. But what about the future? Consumers and governments around the world are growing more concerned about oil—about how it impacts the environment and about whether there will be enough to meet fuel demands. In response to these concerns, there has been much research and development dedicated to alternative fuel vehicles, from all-electric cars like the Nissan Leaf, to gas-electric hybrids like the Chevy Volt or hydrogen-powered cars like the Honda FCX Clarity. And consumers have responded quite favorably. In just four short months, GM sold over 2,000 Volts and Nissan sold over 1,000 Leafs. What’s an even more encouraging sign is that nearly 20,000 customers have already paid a deposit to be put on a waiting list for the Leaf, and almost 54,000 are on the Volt waiting list.
The executives pushing for change point to these figures as a sign that the auto industry will soon experience a dramatic shift. They’re arguing that the age of the gasoline engine (along with gas stations and gas companies) will soon be over, replaced by a more environmentally friendly method of fueling cars. In their view, the company should act now, and quickly, to take advantage of this shift by investing in a nation-wide network of electric charging stations, where consumers recharge their all-electric or plug-in hybrid cars. That way, when gas-engine technology is eventually surpassed, your company will be in prime position to provide recharging infrastructure to the entire country.
There are others in the company, however, who doubt that this is the right step to take. Although they recognize that gas engines may not last forever, they’re not convinced that it’s a technology in decline. They recognize as well that sales of electric cars and hybrids are on the rise, but these are still microscopic compared to the 11.5 million conventional cars sold in the United States or the 18 million sold in China last year. They are also concerned that all-electric cars are just one choice among many alternative fuels; there are also hydrogen-powered cars, natural gas-powered cars, biofuels, and who knows what else will be developed in the future. Their great worry is that the company will spend huge amounts of time and money to develop a recharging network only to have another alternative fuel rise as the dominant design.
So what should the company do? Should it look the future right now, even as its earnings from oil are near record highs? Or should it stay the course?
- What is your recommendation for how the company should proceed? Should it take action on developing an alternative fuel network or wait until a dominant design arises?
- What are the advantages and disadvantages of choosing a technology format before a dominant design arises?
- What steps could the company take to help ensure that electric engines become the dominant design?
- Until a few years ago, your company, Vibram, was known for making soles for hiking boots. It’s the only thing your company did for over 75 years. But one day, a member of your design team came up with a quirky idea—running shoes that look like gloves for your feet. The prototype he showed you was thin, lightweight, and kind of funny looking, since it had individual sections for each toe. As the designer explained to you, the shoe would give the wearer the feeling of running barefoot, while protecting his or her feet from dirt and cuts. Seemingly overnight, the shoe, called FiveFingers, became a sensation. It was praised by professional athletes, amateur runners, journalists, and even the Harvard Medical School. Scientists wrote about how your shoes promoted a “barefoot” running-style that produces less stress on the joints and increased leg, ankle, and foot strength. And consumers could not get enough. Sales for the current year are expected to top $50 million, up from $11 million in the previous year. To meet demand, Vibram had to double their warehouse space and expand from one factory to five.
Not all is rosy with Vibram, however. First of all, it faces stiff competition from some of the biggest names in the athletic apparel industry, as Nike, New Balance, and others are planning to release a similar product. But even more worrisome are counterfeiters. Over the past few months, you’ve discovered more than 200 websites that sell fake versions of the FiveFingers shoes. And these websites aren’t just selling shoes that sort of look like yours—they’re almost exact copies. They have the same styles, colors, logo, and box design. They have a return label that looks just like yours, and has your company’s address on it! When consumers want to return the fakes, they end up in your offices, and customers want you to refund them for shoes they bought from a counterfeiter.
Your company, of course, wants to fight back against the counterfeiters. Not only do the fake shoes reduce your sales, but they could also hurt your reputation of producing high-quality products. But fighting counterfeiters is expensive. You have to hire and send inspectors to China, where most of the factories producing copies of your shoes are located. And for every fake website you find, it costs $2,500 to get the World Intellectual Property Organization to shut it down. How should your respond to companies that take advantage of a product that your company worked so hard to design and create?
- As a manager, would you recommend that Vibram keep paying the costs associated with fighting counterfeiters? Why or why not?
- Some Vibram employees might be discouraged by counterfeiters, feeling that the innovations they worked hard to create are being stolen too quickly. How would you nurture the creative environment at Vibram in spite of counterfeiters?
 Sources: Nevin Batiwalla, “Nissan’s Leaf Sales Spike in April,” Nashville Business Journal, May 3, 2011, accessed January 17, 2015, from www.bizjournals.com/nashville/news/2011/05/03/nissan-leaf-sales-spike.html; “China 2010 Auto Sales Reach 18 Million, Extend Lead,” Bloomberg Businessweek, January 10, 2011, accessed January 17, 2015, from www.bloomberg.com/news/2011-01-10/china-2010-auto-sales-reach-18-million-extend-lead-update1-.html; Craig Trudell “U.S. Auto Sales Probably Rose, Completed 2010 Rebound,” Bloomberg Businessweek, January 4, 2011, accessed January 17, 2015, from www.bloomberg.com/news/2011-01-03/u-s-auto-sales-may-match-2010-high-complete-first-annual-gain-in-5-years.html; GM Volt Wait List Data, accessed January 17, 2015, from http://gm-volt.com/wait-list-data/; Isabel Ordonez, “Exxon, Shell Profits Soar On Higher Oil Prices,” The Wall Street Journal, April 29, 2011, accessed January 17, 2015, from com/article/SB10001424052748704330404576291350999515650.html;”>http://online.wsj.com/article/SB10001424052748704330404576291350999515650.html; “Sales Update: Nissan Leaf Hits 573, Chevy Volt at 493 in April,”Autoblog.com, May 3, 2011, accessed January 23, 2011, from www.autoblog.com/2011/05/03/sales-update-nissan-leaf-hits-573-chevy-volt-at-493-in-april/
 Source: Jennifer Alsever, “Barefoot Shoes Try to Outrace the Black Market,” CNNMoney.com, August 13, 2010, accessed http://money.cnn.com/2010/08/13/smallbusiness/vibram_fivefingers/index.htm.