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In 2006, a small business was created in the financial sector. The main purpose of the business was to provide customers with a close to real-time analysis of their stock portfolios. After months of doing business, several IT Administrators began to notice subtle changes in the corporate network. Shortly after that, the CEO began calling high-level meetings, especially with marketing and finance, to determine why the company

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Xerox: Adapting to the Turbulent Marketing Environment Xerox introduced the first plain-paper office copier more than 50 years ago. In the decades that followed, the company that invented photocopying flat-out dominated the industry it had created. The name Xerox became almost generic for copying (as in Xerox this for you). Through the years, Xerox fought off round after round of rivals to stay atop the fiercely competitive copier industry. Through the late 1990s, Xerox's profits and stock price were soaring. Then things went terribly wrong for Xerox. The legendary company's stock and fortunes took a stomach-churning dive. In only 18 months, Xerox lost some $38 billion in market value. Its stock price plunged from almost $70 in 1999 to under $5 by mid-2001. The once-dominant market leader found itself on the brink of bankruptcy. What happened? Blame it on change or rather on Xerox's failure to adapt to its rapidly changing marketing environment. The world was quickly going digital, but Xerox hadn't kept up. In the new digital environment, Xerox customers no longer relied on the company's flagship products' standalone copiers to share information and documents. Rather than pumping out and distributing stacks of black-and-white copies, they created digital documents and shared them electronically. Or they printed out multiple copies on their nearby networked printer. On a broader level, while Xerox was busy perfecting copy machines, customers were looking for more sophisticated document management solutions. They wanted systems that would let them scan documents in Frankfurt, weave them into colorful, customized showpieces in San Francisco, and print them on-demand in London even altering for American spelling. This left Xerox on the edge of financial disaster. We didn't have any cash and few prospects for making an, says current Xerox CEO, Ursula Burns.The one thing you wanted was good and strong leaders that were aligned and could get us through things and we didn't have that. Burns didn't realize it back then, but she would one day lead the company she began working for as a summer intern in 1981. In fact, Burns almost left the company in 2000, but her colleague and friend, Anne Mulcahy, became CEO and convinced her to stay. Burns was named a senior vice president and was then charged with cleaning the house. The Turnaround Begins Task number one: Outsource Xerox's manufacturing. An often criticized and unpopular move, outsourcing was critical to Xerox's cost-saving efforts. Burns oversaw the process in a way that preserved quality while achieving the desired cost benefits. And she did so with the blessing of Xerox's employee union by convincing the union that it was either lose some jobs or have no jobs at all. With the restructuring of manufacturing, in only four years, Xerox's workforce dropped from 100,000 employees to 55,000. Although this and other efforts returned Xerox to profitability within a few years, the bigger question still remained: What business is Xerox really in? To answer this question, Xerox renewed its focus on the customer. Xerox had always focused on copier hardware. But we were being dragged by our customers into managing large, complex business processes for them, says Burns. Before developing new products, Xerox researchers held seemingly endless customer focus groups. Sophie Vandebroek, Xerox's chief technology officer, called this dreaming with the customer. The goal, she argued, was involving [Xerox] experts who know the technology with customers who know the pain points. . . . Ultimately innovation is about delighting the customer. In the process, Xerox discovered that understanding customers is just as important as understanding technology. What Xerox learned is that customers didn't want just copiers; they wanted easier, faster, and less costly ways to share documents and information. As a result, the company had to rethink, redefine, and reinvent itself. Xerox underwent a remarkable transformation. It stopped defining itself as a copier company. In fact, it even stopped making standalone copiers. Instead, Xerox began billing itself as the world's leading document management technology and services enterprise. The company's newly minted mission was to help companies be smarter about their documents. This shift in emphasis created new customer relationships, as well as new competitors. Instead of selling copiers to equipment purchasing managers, Xerox found itself developing and selling document management systems to high-level information technology managers. Instead of competing head-on with copy machine competitors like Sharp, Canon, and Ricoh, Xerox was now squaring off against information technology companies like HP and IBM. Although it encountered many potholes along the way, the company once known as the iconic copier company became increasingly comfortable with its new identity as a document-management company. Building New Strengths Xerox's revenue, profits, and stock price began to show signs of recovery. But before it could declare its troubles over, yet another challenging environmental force arose the Great Recession. The recession severely depressed Xerox's core printing and copying equipment and services business, and the company's sales and the stock price tumbled once again. So in a major move to maintain its transition momentum, Xerox acquired Affiliated Computer Services (ACS), a $6.4 billion information technology (IT) services powerhouse with a foot in the door of seemingly every back office in the world. The expertise, capabilities, and established channels of ACS were just what Xerox needed to take its new business plan to fruition. The synergy between Xerox, ACS, and other acquired companies has resulted in a broad portfolio of customer-focused products, software, and services that help Xerox's customers manage documents and information. In fact, Xerox has introduced more than 130 innovative new products in the past four years. It now offers digital products and systems ranging from network printers and multifunction devices to color printing and publishing systems, digital presses, and book factories. It also offers an impressive array of print management consulting and outsourcing services that help businesses develop online document archives, operating in-house print shops or mailrooms, analyze how employees can most efficiently share documents and knowledge, and build Internet-based processes for personalizing direct mail, invoices, and brochures. These new products have allowed Xerox to supply solutions to clients, not just hardware. For example, Xerox has a new device for insurance company customers, a compact computer with scanning, printing, and Internet capabilities. Instead of relying on the U.S. Postal Service to transport hard copies of claims, these and related documents are scanned on-site, sorted, routed, and put immediately into a workflow system. This isn't just a fancy new gadget for the insurance companies. They are seeing real benefits. Error rates have plummeted along with processing times, and that means increases in revenues and customer satisfaction. Dreaming Beyond Its Boundaries Riding the combination of Xerox's former strengths and its new acquisitions, Burns and the Xerox team now have a utopian image of what lies ahead. They believe the tools and services they offer clients are getting smarter. It's not just processing Medicaid payments, says Stephen Hoover, director of Xerox's research facilities. It's using our social cognition research to add wellness support that helps people better manage conditions like diabetes. Hoover adds that the future may see a new generation of Xerox devices, such as those that can analyze real-time parking and traffic data for municipal customers, allowing them to help citizens locate parking spots or automatically ticket them when they are going too fast. Already, Xerox is market testing parking meters that are capable of calling 911 or taking photos when a button is pushed. Not all products such as these will hit the market, but Xerox now has a model that allows it to dream beyond its known boundaries. In another example of smarter tools for clients, Xerox will soon rollout Ignite, a software and Web-based service that turns its copiers/scanners/printers already in service at schools around the world into paper-grading machines. Previous automated grading technologies (such as Scantron) worked only on multiple-choice responses filled out on special forms. But Ignite will grade work where answers are written in by students even numeric math problems. The real revolutionary potential of Ignite, however, is not just in automated grading, but in taking the results and turning them into Web-accessible data that allow teachers to identify problem areas and make improvements to their techniques. Throughout this corporate metamorphosis, Xerox isn't focused on trying to make better copiers. Rather, it is focused on improving any process that a business or government customer needs to perform and performing it more efficiently. Xerox's new machines have learned to read and understand the documents they scan, reducing complex tasks that once took weeks down to minutes or even seconds. From now on, Xerox wants to be leading global document management and business-process technology and services, provider. With all the dazzling technologies emerging today, Burns acknowledges that the business services industry in which Xerox now operates is decidedly unsexy. But she also points out that these are processes that companies need to run their businesses. They do it as a sideline; it's not their main thing. But running these seemingly mundane business processes is now Xerox's main thing. Xerox provides these basic document and IT services to customers so that customers can focus on what matters most to their real businesses. Xerox's transition is still a work in progress. Over the last four years, the company's revenues are up 47 percent and profits have more than doubled. Its stock price, however, has struggled (it has yet to top $12), a sign that Xerox isn't doing as well as Wall Street thinks it should be. Part of the reason is that Xerox still relies to some extent on its copier and printer products for its success, even with its recent diversification strategy. And just as e-mail and desktop software killed photocopying, smartphones and tablets are killing inkjet and photo printers. But Xerox depends much less on such products than competitors such as Hewlett-Packard and Lexmark International do. Thus, experts predict, Xerox will rebound much more quickly than its rivals. Burns and crew are also confident that as Xerox continues its transition to a solutions provider, the seeds it has planted over the past few years will soon bear fruit. Xerox knows that change and renewal are ongoing and never-ending. The one thing that's predictable about business is that it's fundamentally unpredictable says the company's annual report. Macro forces such as globalization, emerging technologies, and, most recently, depressed financial markets bring new challenges every day to businesses of all sizes. The message is clear. Even the most dominant companies can be vulnerable to the often turbulent and changing marketing environment. Companies that understand and adapt well to their environments can thrive. Those that don't risk their very survival. Questions for discussion:

1. What microenvironmental factors have affected Xerox's performance since the late 1990s?

2. What macroenvironmental factors have affected Xerox's performance during that period?

3. By focusing on the business services industry, has Xerox pursued the best strategy? Why or why not?

4. What alternative strategy might Xerox have pursued following the first signs of declining revenues and profits?

5. Given Xerox's current situation, what recommendations would you make to Burns for the future of Xerox?

maroonskunk617

1. Fiscal policy attempts to affect the level of overall spendingin the economy by changes in:
A) the interest rate.
B) the money supply.
C) banking regulations.
D) taxes and spending.

2. Economists have identified several consecutive months of fallingemployment and forecasts for the next few months are for more ofthe same. At what point in the business cycle is the economyapparently located?
A) recession
B) expansion
C) business cycle peak
D) business cycle trough

3. The onset of the Great Depression:
A) was not a shock to anyone since most economists predicted theâroaring 20sâ were bound to end in disaster.
B) created a disagreement between the Hoover administration andconventional economists because Hoover wanted the government tointervene much more quickly than most others.
C) came as a considerable shock to the conventional wisdom ofeconomics at that time and opened the door for critiques ofmainstream thought by economists like JM Keynes.
D) was in 1918 at the end of World War I.

4. When economists measure economic growth, they often use:
A) the inflation rate.
B) the unemployment rate.
C) nominal GDP.
D) real GDP.

5. In a typical business cycle, the business cycle peak isimmediately followed by the:
A) recession.
B) business cycle trough.
C) expansion.
D) depression.

6. Suppose an economy experiences rising total output accompaniedby increasing employment, this is generally known as:
A) stagflation.
B) recession.
C) inflation.
D) expansion.

7. Controlling interest rates is an example of:
A) fiscal policy.
B) tax policy.
C) monetary policy.
D) exchange rate policy.

8. The alternation between recessions and expansions is known asthe:
A) unemployment rate.
B) long-run economic growth.
C) business cycle.
D) macroeconomy.

9. A recession in America is typically associated with:
A) a falling unemployment rate.
B) a decrease in the number of people living in poverty.
C) a decrease in the percentage of Americans with healthinsurance.
D) an increase in corporate profits.

10. The purpose of macroeconomic policy is to:
A) bring unemployment closer to the natural rate.
B) reduce the severity of recessions.
C) rein in excessively strong expansions.
D) bring unemployment closer to the natural rate and to reduce theseverity of recessions.

11. The trade balance is the difference between the value ofthe:
A) trade deficit and the budget deficit.
B) goods and services that one country sells to other countries andthe value of the goods and services it buys in return.
C) exchange rates of two countries that are engaged ininternational trade.
D) national debt and the foreign debt.

12. Increasing the total amount of available productive resourcesis the focus of __________.
A) macroeconomics
B) fiscal policy
C) monetary policy
D) microeconomics

13. The point on a business cycle when real GDP stops rising andbegins falling is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.

14. During a recession, one will often observe:
A) aggregate output rising.
B) unemployment rates will be increasing while aggregate output isfalling.
C) employment rates will be rising.
D) zero unemployment rates.

15. Monetary policy involves:
A) changes in government spending.
B) changes in government tax receipts.
C) changes in the quantity of money.
D) changes in tax rates.

16. The trough of the business cycle:
A) comes right after the expansion phase.
B) comes before the recession phase.
C) is a temporary maximum level of real GDP.
D) is a temporary minimum level of real GDP.

17. Which one of the following statements about the U.S. economy isnot accurate?
A) Since the Second World War, aggregate output grew at a ratelower than the average annual growth rate of population.
B) Since the Second World War, aggregate output grew at a ratehigher than the average annual growth rate of population.
C) Since the Second World War, macroeconomic policy has helped makethe economy more stable.
D) Long-run growth per capita is the key to higher wages and arising standard of living.

18. An economic recovery is all of the following except:
A) economic growth of a sustained nature.
B) a short-run increase in aggregate production in aneconomy.
C) a time of increasing employment.
D) the end of the business cycle.

19. Which of the following would NOT be classified as amacroeconomic question?
A) How many people are employed in the economy as a whole?
B) What determines the overall level of prices in the economy as awhole?
C) What determines the overall trade in goods, services, andfinancial assets between the United States and the rest of theworld?
D) What determines the cost to a university or college of offeringa new course?

20. Which of the following statements regarding price level orinflation is correct?
A) Supply and demand can not explain why a particular good orservice becomes more expensive relative to other goods andservices.
B) Inflation affects only the more advanced countries whereas lessadvanced countries face deflation.
C) Prices of most goods and services remained stable during thegreat depression.
D) In general, when the economy is in recession and jobs are hardto find, inflation tends to fall.

21. If wages grew at a 5% rate last year and average prices grew ata 3% rate, then the average worker is:
A) better off.
B) worse off.
C) no better or worse off.
D) unaffected.

22. In an open economy:
A) the exchange rate is determined by the government.
B) specialization in activities with a comparative advantage is notpossible.
C) trade is only beneficial to the relatively larger economy.
D) there is trade in goods, services, or assets with othercountries.

23. Changes in government spending and taxes in an effort to changeoverall spending in an economy is:
A) fiscal policy.
B) monetary policy.
C) investment.
D) the stock market.

24. If an economy is open, this means that:
A) anyone can immigrate to the country.
B) trading with other countries makes up a portion of itseconomy.
C) it does not trade with other countries.
D) it will experience a drop in its real GDP.

25. Inflation is a situation where:
A) the average price level falls.
B) the average price level increases.
C) the average price level becomes negative.
D) the real price level falls.

26. The topics studied in macroeconomics include:
A) the price of a motorcycle.
B) the wages of engineers.
C) the average price level in the economy.
D) how much ice cream consumers buy.

27. A period of rising real GDP is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.

28. The modern tools of macroeconomic policy are:
A) tax policy and antitrust policy.
B) fiscal policy and monetary policy.
C) monetary policy and exchange rate policy.
D) capital policy and labor policy.

29. A ârubber neckingâ traffic jam is an example of:
A) microeconomics in action.
B) individual behavior that has a large aggregate impact.
C) the paradox of thrift.
D) an outcome smaller than the sum of its parts.

30. The most painful consequence of a recession is:
A) rising unemployment.
B) increasing inflation.
C) increasing aggregate output.
D) higher interest rates.

31. Per capita economic growth is:
A) economic growth per unit of capital.
B) economic growth per person.
C) economic expansion over the business cycle.
D) sustained increase in aggregate output.

32. Keynesian economics stressed:
A) total spending.
B) the self-regulating power of free markets.
C) the long run.
D) that the Depression should run its course to bring down the highcost of living.

33. When an economy's overall production grows faster than itspopulation, this is referred to as:
A) long-run growth per capita.
B) an increase in nominal GDP.
C) deflation.
D) the paradox of thrift.

34. Fiscal policy attempts to affect the overall level of spendingin the economy through:
A) changes in the inflation rate.
B) changes in the quantity of money or the interest rate.
C) changes in tax policy or government spending.
D) discretionary regulation of profits and wages.

35. With regard to the aggregate price level, economists generallybelieve:
A) price stability is a desirable goal.
B) inflation is worse than deflation.
C) deflation is worse than inflation.
D) inflation actually benefits most retired people.

36. Recessions are periods when:
A) output rises.
B) the aggregate price level rises.
C) the unemployment rate is falling.
D) output and employment are falling.

37. Monetary policy attempts to affect the overall level ofspending in the economy by changes in:
A) taxes.
B) taxes and spending.
C) taxes and interest rates.
D) interest rates and the quantity of money.

38. The basic difference between an economic recession and economicdepression is that:
A) the latter is a shorter economic downturn than the former.
B) during recessions output falls faster than duringdepressions.
C) during depressions employment falls faster than duringrecessions.
D) the former is a longer economic downturn than the latter.

39. The central mission of modern macroeconomics is to prevent_____ from happening again.
A) recessions
B) inflation
C) deflation
D) anything like the Great Depression

40. Fiscal policy refers to:
A) the control of interest rates.
B) the control of government spending and taxations.
C) the control of the quantity of money.
D) the control of interest rates and of government spending.

byzantiumant655

Adapted from Bayer-Monsanto: the challenges of a Mega-merger. Case #9B17M182 and Teaching Note #8B17M182 Ivey Publishing

In 2016, the German multinational Bayer AG and the U.S.-based Monsanto Company agreed to merge, potentially creating the world's largest integrated pesticide and seeds company.

The agrochemicals and pharmaceuticals industries have several attributes in common. Both have large markets and high growth potential. Both industries also have strong technological roots in chemistry and biology. Too, the R&D intensity is high in both industries. Monsanto, for example, spends over 10% of its revenues on R&D whereas the average pharmaceutical firm spends 13%. Both industries are also subject to strict government regulation. For example, safety reviews of new products are commonplace in pharmaceuticals while genetically modified organisms are forbidden in Europe.

Nevertheless, there were some differences. For example, while the pharmaceutical industry is rather fragmented, agrochemicals were not - 6 companies controlled 2/3 of the seed business and 3/4 of the pesticide market. Moreover, the pharmaceutical industry is characterized by long product life cycles (e.g., 12 years) and heavy up-front investments in R&D to discover new products. To compound this risk, Bayer had a relatively limited portfolio in pharmaceuticals (15 products accounted for 80% of its 2015 pharmaceutical revenues).

Table 1: Revenue Distribution of Pharmaceutical companies in 2015, millions of Euros
Company	Pharmaceutical Revenues	Other Revenues
GlaxoSmithKline	21.4	14.6
AstraZeneca	34.0	0.0
Sanofi	29.8	4.7
Merck	32.2	3.4
Pfizer	44.0	0.0
Novartis	27.4	17.1
Roche	35.3	9.8
Bayer	12.6	29.8*
Johnson & Johnson	28.3	34.8
*9.1M Consumer health, 10.4M Crop Science, 12.0M Polymers, Coatings, and Adhesives. Source: Bayer 2015 annual report

Other factors favored the merger. For example, while Monsanto had a strong presence in America (53% of its sales), Bayer's geographical presence was stronger in Europe. Too, it was anticipated that knowledge from Bayer's pharmaceuticals and crop science research could be shared across Monsanto's animal health business. Both sides also anticipated additional benefits from the overlap in customers farmers - and from bundling seeds and pesticides in an exclusive package. Also, though Bayer had traditionally been weak in seeds they represented only 12% of crop science division sales - Monsanto's expertise in this area was thought to be a good complement. In fact, Monsanto's seeds had been engineered to be resistant to its Roundup herbicide. Furthermore, Bayer's new CEO, Werner Baumann, had previously managed the strategy and portfolio department at Bayer and, consequently, had a good deal of M&A experience. And finally, both companies were focusing on big dataâ to provide new services and more precision for farmers. The possibility of a huge data bank created by the convergence of the data from both sides promised further productivity improvements.

Nevertheless, although agrochemicals could be considered an oligarchic industry dominated by firms such as DuPont, Syngenta, Monsanto, and Bayer, even the leading players had been struggling recently with a new wave of mergers and acquisitions. For example, after Monsanto had made three unsuccessful attempts to acquire Syngenta in 2014-2015, Dow and Dupont merged in December 2015 and Syngenta merged with ChemChina in February 2016.

Table 2: 2015 Revenues by business segment, $B
	Crop protection & seeds	Other	Other divisions
DuPont	9.8	15.2	Electronics (2.1B), Ind'l. Biosciences (1.1B), Nutrition & Health (3.2B), Perf. Materials (5.3B), Safety & Protection (3.5B)
Dow	7.3	50.5	Perf. Plastics (22.4B), Perf. Mat'ls and Chem. (15.1), Infrastructure Solns. (8.4), Customer Solutions (4.6)
Syngenta	13.0	0.0
Chem China	n.a	n.a.	Agrochemicals, Basic Chemicals, Specialty Chemicals, Tire & Rubber, Chemical Equipment, Oil Processing
Monsanto	15.0	0.0
Sources: 2015 Annual Reports

Furthermore, Bayer and Monsanto would need to obtain approval from regulators in over 30 countries to close the deal. U.S. regulators had opposed the merger but the ascension of Donald Trump to the presidency (he argued that agriculture had needed more innovation) boded well for approval of the combination in the U.S. The European Union, on the other hand, had opposed Monsanto, especially its genetically-modified organisms (GMO).

Diana L. Moss, president of the American Antitrust Institute, also pointed out that

The United States Department of Agriculture (USDA) notes that the price of farm inputs, led by crop seed, generally have risen faster over the last twenty years than the prices farmers have received for their commodities. Moreover, seed prices have outpaced yield increases over time. And finally, the USDA has determined that increasing levels of concentration in agricultural input markets (including crop seeds) are no longer generally associated with higher R&D or a permanent rise in R&D intensity.

Therefore, we might conclude that this consolidation would negatively pressure consumers and farmers.

Questions:

The preceding discussion documents Bayer's attempt to further diversify its portfolio of businesses.

1. What weaknesses were Bayer trying to address via its diversification strategy?

2. What opportunities in its environment (e.g., synergies created by merging with Monsanto) is Bayer trying to exploit via its diversification strategy? Is this a case of related or unrelated product/market diversification?

3. Finally, according to the resource-based view, firms may differ in the number of synergies they possess vis-a-vis target firms. Those with greater synergies may be able to profit more from the acquisition than their competitors. They may either (1) win the bid at a lower price, thereby earning above-normal profits, or (2) withdraw from the bidding if the target price becomes too high, allowing the winning bidder to earn below-normal profits.

What attributes does Bayer bring to the bidding for Monsanto that suggests it might have had different (possibly more) synergies with Monsanto than other potential bidders (e.g., Dow or ChemChina)?

chocolatepug721

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