SUNBEAM (1998) CASE REPORTExample from Rex Mitchell=s class

Note: This is an example of one good (A) paper, but it is not perfect and is not a template to use. You must to write your report individually without plagiarizing this one!! As you write, please pay attention to the BUS 497A Assignment Details module ( http://www.csun.edu/~hfmgt001/assign497.htm ), specifically the format given there in the sub-sections on Written Case Analysis Reports and Case Report Headings, plus the guidance given in the sub-sections on Case Report Grading Criteria and Common Failings in Case Reports.

Table of Contents

Executive Summary....................................................................................................... p. 2

Internal Analysis ........................................................................................................... p. 3Current Mission, Long-Range Objectives, Strategies and Performance ...........................p. 3Functional Analysis ......................................................................................................... p. 4 Marketing..................................................................................................................... p. 4 Financial ..................................................................................................................... p. 4 Production/Operations ................................................................................................. p. 5 Technology ................................................................................................................. p. 5 Organizational ............................................................................................................. p. 5

Analysis of the External Environment .........................................................................p. 7Business/Competitive Environment (Porter's 5 Forces) ...................................................p. 7General Environment ...................................................................................................... p. 8 Economic .................................................................................................................... p. 8 Social/Cultural ............................................................................................................ p. 8 Political/Legal ............................................................................................................. p. 8 Technological ............................................................................................................. p. 8

Integration of Major Strategic Issues ..........................................................................p. 9

Available Alternative Strategies ...................................................................................p. 10Corporate Level Strategies .............................................................................................. p. 10Competitive Strategy ....................................................................................................... p. 11

Recommendations and Implementation ......................................................................p. 13Corporate Level Strategies .............................................................................................. p. 14Competitive Strategy ....................................................................................................... p. 14Other Strategies................................................................................................................ p. 14

Appendices...................................................................................................................... p. 15

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EXECUTIVE SUMMARY

In the wake of Al Dunlap's drastic restructuring, Sunbeam appears do be doing quite well in early 1998 with revenues on the rise, solid profits and a positive cash flow. However, there are some critical issues on the horizon that Sunbeam needs to address quickly. Ironically, the company's savior, Al Dunlap, has put a rather audacious proposal of a triple acquisition on the table that will leave the company highly leveraged and strapped for cash if completed. Largely enabled by an inflated Sunbeam stock value that could quickly change, the acquisitions would also entail a drastic reversal of Sunbeam=s successful current corporate strategy of concentration.

Another related critical issue is that Al Dunlap, a renowned turnaround expert, has decided to stay on as Sunbeam CEO to lead the company "through a long period of growth," a responsibility in which he has little past experience. Besides the critical issues raised by Al Dunlap's latest moves, it is also important to keep in mind that Sunbeam's core business is in a mature industry with limited growth so Sunbeam needs to exploit as many avenues as possible to keep expanding in the future.

To secure a more stable future financial position for Sunbeam, one key recommendation is to only acquire one of the three proposed acquisition targets, namely Signature Brands USA. This acquisition will provide distribution synergies, opportunities for international expansion and it is aligned with Sunbeam's core strategy of concentration. Additionally, it is recommended that Sunbeam grows further by forming a strategic alliance with Sun Microsystems to produce and market "smart" appliances. The issue of Al Dunlap lacking long-term management expertise is difficult to address, since he is so powerful and surrounded by a loyal team, but it is recommended that the board looks for an alternate "dynamic industry expert" who could quickly step in should Dunlap prove to be unsuccessful in the unfamiliar "Jack Welch" type role.

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INTERNAL ANALYSIS

CURRENT MISSION, LONG-RANGE OBJECTIVES, STRATEGIES & PERFORMANCE

When renowned turnaround specialist Albert Dunlap stepped in as CEO of the struggling appliance maker Sunbeam in July 1996, his immediate strategy was to aggressively cut the company's costs by eliminating excessive staff, simplify the company's SKU system, divest unprofitable divisions and consolidate headquarters as well as production facilities. He also made the Hattiesburg, Mississippi plant the central point of Sunbeam's operations, a decision solely based on its lower wage costs, which may not always be the most important factor in selecting a long-term facility location. However, on the whole, his drastic restructuring strategy was clearly warranted; and resulted in higher sales, significantly lower cost of goods sold and operating profits along with a steadily climbing Sunbeam stock price in 1997. In addition to the downsizing, Dunlap also emphasized focusing on the core business, defined as "electronic appliances and appliance-related business," and promptly sold a number of divisions that were not closely related to the new Sunbeam's main line of business.

When the organization had been trimmed down to a desirable and efficient level, Dunlap turned his energies to realize his future vision for Sunbeam, which included aggressive growth and global expansion of the core business by competing based on product differentiation with development of new product lines mirroring growing consumer preferences for novel, timesaving convenience appliances. A three-year business plan employing these strategies boldly aimed to double sales to $2 million while increasing revenues and operating margins by 20% per year and increase ROE to 25% ("20/20/25").

On a management and corporate governance level, Dunlap tends to surround himself with loyal executives from prior ventures, and in fact he quickly replaced all Sunbeam board members except one major shareholder (Franklin Resources with a 35% stake). This strategy may make it easier for Dunlap to get consensus for his viewpoints, but it may also stifle innovation, creativity and fresh ideas. It is obvious that Dunlap has had tremendous success in the past; however, since the business environment is continuously changing, he should keep in mind that those experiences do not automatically translate into future triumphs. Dunlap also prefers a highly involved and vested Board of Directors, accomplished by requiring board members to invest a large portion of their personal wealth in Sunbeam stock. This requirement certainly creates incentives for the board members to carefully consider future strategic decisions, which should have a positive impact on the company as a whole. Another core belief of Dunlap's is that "the most important person in the company is the shareholder" and that the ultimate measure of a company's value is the share price of its stocks. Although there is much truth in the notion of a company's responsibilities to its investors, being too focused on a company's stock price may sometimes divert attention from other critical issues.

Up to this point, Dunlap's strategies appear to be reasonable considering the obvious inefficiency of Sunbeam's performance prior to mid-1996 and his extensive expertise in the arena of business re-engineering. According to the securities markets, his strategies had been highly successful, as evidenced in a Sunbeam share price that quadrupled in just 18 months after Dunlap's CEO appointment. In late 1997, however, in an uncharacteristic strategy reversal, Dunlap decided that he would stay with Sunbeam "to build the company back up" instead of exiting yet another successful turnaround. As part of this new strategy he started seeking candidates for mergers and/or acquisitions that could add some synergy and desirable new products to Sunbeam and that Dunlap could "rescue" just as he had rescued 9 companies in the past. Sunbeam's intent to acquire three companies (Coleman, Signature Brands and First Alert) simultaneously, announced on March 2, 1998, may create history on Wall Street if implemented, but in light of Sunbeam's very recent financial woes, this seems like an over-confident move on behalf of Al Dunlap that could entail large risks for Sunbeam. Not only is he venturing out on unfamiliar grounds in his attempt to "break records" and create rapid growth for Sunbeam, this new strategy entails growing by acquiring firms with lines of business similar to those he had previously discarded at Sunbeam for not

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being related to the core business (such as outdoor furniture). Essentially, this audacious acquisition proposal represents a sudden 180 turn in strategy; from downsizing while focusing on growing the core business by product differentiation to diversifying through both concentric and conglomerate acquisitions. This may be a viable strategy change; however, the financial and operational implications of acquiring three companies at once would be profound, as discussed below in the Functional Analysis.

FUNCTIONAL ANALYSIS

MarketingSunbeam's core marketing strength lies in having a strong distribution network, with its products

being sold in a wide variety of retail outlets, including large drug store chains, home supply centers, discount merchandisers as well as some high-end retailers (see Appendix 2 for a complete SWOT table). This broad distribution approach not only spreads the risk of being too reliant on certain retailers; it also provides a more extended selection of where Sunbeam products can be purchased, and will be helpful in integrating Sunbeam's new product lines should the proposed acquisitions take place. Nevertheless, Wal-Mart still accounts for nearly a fifth (19%) of Sunbeam's revenues in 1996, thus it is critical that Sunbeam maintains a good relationship with this important retailer. On the promotional side, Sunbeam employs extensive marketing package promotions through mass-retailers, catalogs, outlet stores, television shopping and independent distributors. Another notable strength in the marketing arena is the Oster brand's leading market share in many Latin American countries. This is sharply contrasted to the almost incomprehensible fact that Sunbeam was attempting to sell 110-volt appliances in Asia; a continent that uses 220-volt electricity... Clearly, Sunbeam has great potential to increase revenues in the Asian region while maintaining its leadership position in Latin America both in terms of its current product lines as well as any products acquired in the future.

As pointed out in the SWOT analysis, one bold strategic move on Sunbeam's part was to form a marketing alliance with the American Medical Association. This endorsement agreement was not only unique since it was the first time the AMA had agreed to support outside products; it also held great potential to significantly increase Sunbeam's brand exposure by being linked with the trusted image of the AMA on various marketing materials. However, the resulting public outcry over the questionable ethics of this alliance that led to a breach of the contract by the AMA, may have tarnished the image of Sunbeam along with that of the AMA. After all, the agreement caused a high-profile upheaval within the AMA that would not have occurred without Sunbeam's participation. By refusing to release the AMA from the agreement it had erroneously entered into, Sunbeam certainly couldn't have come across as a very charitable or socially responsible organization in the eyes of the public.

Financial

In the wake of Albert Dunlap's drastic turnaround, Sunbeam's overall financial situation at the end of 1997 is quite sound, although it is important to keep in mind that the company was very troubled financially with huge operating losses in 1996, just one year earlier. Sunbeam is once again profitable with net earnings near one-tenth of total sales (profit margin = 9.4%) and an ROE very close to Dunlap's target of 25% at 20.5%. As illustrated in the ratio comparison table in Appendix 1, this level of profitability is well ahead of other competitors in the saturated home appliance industry whose profits margins tend to be slim. In terms of leverage, Sunbeam uses debt financing to a somewhat higher degree than its competitors, but the company is still safely below the 1.0 ratio "threshold" with a .63 debt to equity ratio in 1997. Sunbeam's liquidity is very high, with recent current ratios ranging from 2.30 - 3.32, surpassing the rest of the industry in its ability to meet short-term financial obligations. A look at Sunbeam's activity ratios reveals a relatively flat trend that is consistent with the industry comparison group.

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The most important aspect of Sunbeam's financial situation, however, is how the company will be affected by the proposed acquisitions of Coleman Company, Signature Brands USA and First Alert. The March 2, 1998 stock price of $45.63 multiplied by the weighted average common shares outstanding of 87,542,000 indicates that Sunbeam's total value approximates $4 billion. However, due to the dramatic fluctuations in Sunbeam's stock price, the same calculation for just a year prior yields a value of circa $1.9 billion, less than half of the above value. The question of whether Sunbeam is a $2 billion or $4 billion company will significantly impact its ability to handle the financing of the proposed $2.5 billion worth of acquisitions, of which one third ($811 million) would be financed through stocks. Assuming additional debts in excess of $1 billion would finance another 42% of the proposed acquisitions. The remaining 25% of the proposed purchase amount, approximately $588 million, would be paid in cash. According to the financial data provided in the case, Sunbeam only had $52.3 million in cash and cash equivalents at the end of 1997, and it seemed unrealistic that the firm had accumulated an extra cash reserve $536 million in just a couple of months. Overall, from a financial standpoint, is does not seem wise for Sunbeam to assume such a large amount of additional debt while completely depleting itself of cash in order to finance the acquisition of three companies. Although the company's stock price kept increasing after the acquisition proposal was announced, the markets may simply be too focused on Al Dunlap's past successes, and when the fragile reality of these acquisitions hit investors, the Sunbeam stock may tumble downward rather quickly.

Production/Operations

A1 Dunlap made drastic operational changes to Sunbeam while on his recent downsizing rampage, including cutting 50% of employees, closing 18 of 26 factories, 37 of 61 warehouses and 39 of 53 facilities, and eliminating 87% of the company's products. While this restructuring appear to have been successful, evidenced in higher revenues, a soaring stock price and healthy profits in 1997, it is really too early to declare Sunbeam a winner after just one good year until there is some evidence of positive long-term trends. As pointed out in the SWOT table, the sweeping changes that included laying off 6,000 employees may have caused unrest among remaining employees that could hurt Sunbeam in the long run. This effect may be augmented if Dunlap uses similar restructuring approaches in each of the companies he is proposing to acquire. Additionally, Dunlap's tendency to locate manufacturing plants in lower wage locations and/or countries may not always result in optimal efficiency. It is important to evaluate facility locations on a number of factors, including experience of available workers, access to transportation links, local unemployment rates, prevalence of unions, etc.

Technology

One of Sunbeam's core competencies lies in its strong warehousing and distribution capabilities, largely enabled by electronic data interchange (EDI) communication and just-intime inventory (JIT) systems. Similar to the distribution efficiencies mentioned in the Marketing section, there could potentially be some synergies gained by integrating the proposed acquisitions into Sunbeam's existing inventory management information system. However, this potential integration may also raise a number of issues, such as which company's technology to use as well as the inherent complexities of combining several proprietary inventory and distribution systems into one.

Organizational

With the notorious "Chainsaw Al" Dunlap at its reigns, aided by his hand-picked management team and Board of Directors of faithful followers, Sunbeam is highly reliant on the quality of his subjective judgments. Although the fact that the board members have high stakes at risk by being heavily

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invested in company stock suggests that strategic moves will be carefully weighed by the Board, it does not appear to be questioning Dunlap's drastic proposal of a triple acquisition. Apparently, the rapid accumulation of shareholder wealth gains that Dunlop had generated had instilled a high level of trust in his fellow board members. Another factor behind the obliging attitude of company executive and board members may be that they are eying attractive lead positions at the companies that are acquisition candidates.

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ANALYSIS OF THE EXTERNAL ENVIRONMENT

COMPETITIVE ENVIRONMENT

The competitive structure of the home appliances industry can best be described as monopolistic competition due to its many sellers and differentiated products. The industry is mature, with a relatively low overall growth rate, and the market is saturated with products, forcing many players to cut prices, consolidate or diversify through acquisitions.

Rivalry Among Existing Firms

Using Michael Porter's Five Forces Model, internal rivalry in the home appliances industry is the principal threat to industry profits (see Appendix 3 for a detailed analysis). The most important factors contributing to the fierce competition are the large number of players, slowing sales growth and low consumer switching costs stemming from products being viewed as similar to one another. To distinguish themselves competitively, firms are forced to invest in research and development to augment product value by adding new features as well as continuously invent novel time-saving and convenience-related appliances.

Threat of Substitutes

As pointed out in Appendix 3, there is a current trend in the home appliances market toward focusing on the more profitable segment of time-saving small appliances. Since most time-saving appliances such as electric juicers, dishwashers, etc. are easily substitutable by manually performing the activity, they can be considered non-essential convenience items that consumers will purchase less of in an economic downturn. Therefore, the overall threat to industry profits from substitutes in this particular segment is moderate to high.

Bargaining Power of Buyers

Buyer bargaining power is normally low for an industry with many distributed, individual consumer purchases of its products. However, retailers could equally be considered buyers of the products sold by firms in the home appliances industry. Since a hugely successful discount retailer such as Wal-Mart have a large say in which products to carry, it follows that they have significant bargaining power. Correspondingly, smaller retailers have less of a choice and thereby less bargaining power to bring to the table. On the whole, bargaining power of buyers is a moderate threat to the home appliances industry profitability.

Threat of New Entrants

The home appliances industry is relatively unattractive to new entrants due to its high penetration and low level of profitability. In addition, there are relatively high barriers to entry in the form of restricted access to distribution channels and capital requirements involved in product design, manufacturing and marketing. In summary, the overall threat to industry profitability by potential new entrants is low (see Appendix 3 for more detail).

Bargaining Power of Suppliers

Since industry firms tend to manufacture their own products, industry suppliers would be the providers of raw materials. There is no indication of any difficulties in obtaining these raw materials;

thus, bargaining power of suppliers is estimated to be a low threat to industry profits.

GENERAL ENVIRONMENT

Economic

With several years of a "bull" stock market and financial prosperity resulting in sizeable discretionary incomes for many U.S. consumers, the economic environment has been largely favorable for firms in the home appliances industry. On the flip side of the coin, many foreign economies have in the same time period struggled through financial downturns. This illustrates the importance of closely observing financial cycles to strategically take advantage of the various upswings as well as downturns by increasing production in recessed economies and emphasize sales and marketing in prosperous markets. Consequently, this environmental force is very important when it comes to the home appliances industry, which relies, at least to a certain extent, on consumer discretionary income. It is also important to note that with international operations in multiple countries, Sunbeam is vulnerable to fluctuations in foreign and domestic currency exchange rates.

Social/Cultural

As mentioned in the detailed SWOT analysis in Appendix 2, the time constraints facing most families in the 1990s has led to increased demand, resulting in the willingness to pay a premium, for time-saving small appliances. This presents an opportunity for one (or multiple) appliance manufacturer(s) to devote some resources toward new product development for this niche, and for instance position themselves as being the leading-edge innovator of convenience items. It is also important for industry firms to consider both the trend toward more singlemember households as well as the aging of the general population when designing and marketing new small appliances.

Political/Legal

Political and legal forces do not play a large role in strategy formulation in the home appliances industry beyond the "normal" regulations and responsibilities of large, publicly held corporations. However, it is worth mentioning here that while Sunbeam's manufacturing facility in Venezuela appear to serve the Latin-American region well, it does subject the company to the usual risks of conducting business internationally, including changes in import tariffs, quotas or other imposed trade restrictions.

Technological

Considering the changing consumer preferences and needs mentioned previously, there is most likely a certain urgency in the industry to develop so-called "smart" home appliances that employ advanced digital and voice-recognition technologies. Although these products are a few years away from mainstream usage, in the long-term respect, technology is certainly an important environmental factor for this reason. In addition, technology plays a crucial role for many industry firms through the efficiencies gained by EDI and JIT warehouse management systems mentioned on page 7 in the Internal Analysis section of this report.

INTEGRATION OF MAJOR STRATEGIC ISSUES

The preceding analysis of Sunbeam's internal and external environment presents a large number of strategic issues in terms of strengths, weaknesses, opportunities and threats (summarized in a SWOT table in Appendix 2). Out of these, the following three issues have been identified as being critical to Sunbeam's future ability to stay competitive:

1. Sunbeam's CEO has proposed a triple acquisition that will leave the company highly leveraged and strapped for cash2. Albert Dunlap lacks experience in running a corporation efficiently in the long run3. Sunbeam's core business is in a mature industry with slow growth and a squeeze on profits

Summary of Critical Issues

1. Sunbeam's CEO has proposed a triple acquisition that will leave the company highly leveraged and strapped for cash

Citing the fact that Sunbeam is "throwing off large sums of cash," and that the logical next step is to make a major merger or acquisition that can "add even more value to the company," CEO A1 Dunlap has proposed a simultaneous acquisition of no less than three separate, publicly traded companies: Coleman Company, Signature Brands and First Alert. As discussed in the financial section of the Internal Analysis of this report, the additional debt Sunbeam needs to incur as well as the large cash outlay involved in the transaction will leave the company in a vulnerable financial condition. The company's volatile stock price could also just as easily lose half its value and put Sunbeam in a strenuous situation, scrambling to stay afloat. In addition to the financial issues, the practicalities involved in integrating not two, but four unique organizations so quickly after Sunbeam underwent a major restructuring process will undoubtedly put additional strain on Sunbeam's management as well as its employees. Another characteristic of the planned acquisition proposal is that it directly contradicts Dunlap's prior strategy of focusing on the core business (electric appliances) and divest unrelated divisions. In fact, as part of the acquisition, Dunlap would be buying business lines that he previously shut down at Sunbeam, such as outdoor furniture.

2. Albert Dunlap lacks experience in running a corporation efficiently in the long runDunlap has developed a unique area of expertise in downsizing sluggish companies to make them

more efficient by carrying out several successful "rescue missions" at a number of corporations over the past couple of decades. However, he needs to keep in mind that these capabilities do not automatically translate into the ability to successfully manage a company over many years along the lines of Jack Welch. Dunlap himself argues that his managerial style is significantly different from that of Welch as well as Bill Gates and that his area of specialty is in "moving into troubled companies to save them from ruin." Regardless of the future strategic paths chosen by Sunbeam, the company will clearly need an executive type to match these strategies.

3. Sunbeam's core business is in a mature industry with slow growth and a squeeze on profitsAlthough Sunbeam was able to post healthy profits in 1997 with a margin of 9.4%, most firms in

the home appliances industry are experiencing slow revenue growth and low, if any, profits. Therefore, it is important that Sunbeam not only continues to operate highly efficiently, but also looks for areas of growth through differentiation, diversification, globalization or acquisitions. Additionally, it is crucial to continue developing novel products that suit the latest consumer needs and wants, particularly when operating in such a highly competitive industry.

AVAILABLE ALTERNATIVE STRATEGIES

CORPORATE LEVEL STRATEGIES

Growth Strategies

Operating in a cutthroat, relatively low-margin industry, Sunbeam currently has an overall orientation toward growth/expansion of the company's activities, which is also necessary to address Critical Issue #3 and remain competitive in the future. Up to this point, Sunbeam's strategy has been to pursue growth by taking market share away from competing firms and via geographic expansion globally (horizontal integration), and both methods have worked relatively well since the company's recent restructuring. Future strategic options Sunbeam could employ for achieving its aggressive growth objective of 20% annual revenue increases include (1) continue concentrating on the current industry and grow by a) capturing market share from competitors, b) expanding through mergers or acquisitions involving present industry players, or c) integrate vertically or horizontally. The second option (2) is whether to grow outside of the current industry through a) concentric or b) conglomerate diversification.

Some growth-related strategic alternatives that are currently under serious consideration by Sunbeam is whether to grow by acquiring one, several or all of the following publicly held companies: 1) Coleman Company, a global leader in outdoor recreational and hardware products; 2) Signature Brands, the North American coffee maker leader as well as the leader in consumer health products and 3) First Alert, the worldwide leader in residential safety equipment. Out of these three companies, only Signature Brands is in the same core business as Sunbeam (electrical appliances and appliance-related products), through its consumer products division, which constitutes 86% of revenues. An acquisition of just Signature Brands would be most closely aligned with Al Dunlap's apparently successful strategy of narrowing Sunbeam's focus to one core product. Additionally, taking over just one firm, with similar products nonetheless, would reduce many of the implementation problems attributable to three concurrent mergers mentioned in Critical Issue #1. Another crucial consideration factor is that a single acquisition would leave Sunbeam on much sounder financial grounds at a time when the true value of its stock is being questioned by analysts.

On the other hand, acquisitions involving Coleman and/or First Alert (with or without Signature Brands) would result in Sunbeam pursuing a concentric diversification strategy by expanding into product lines that are not directly appliance-related. Both Coleman and First Alert, however, manufacture consumer household products that tend to be sold in the same retail outlets as appliances, so Sunbeam could potentially take advantage of these commonalities and utilize its excellent distribution system to market the products of the acquired companies as well.

There also appear to be synergies between the existing product lines of Sunbeam and those of some of the takeover targets. For example, Coleman's camping and recreational products would fit nicely into Sunbeam's Outdoor Cooking division, Signature Brands' Mr. Coffee product would be ideal for the Appliances division and its Health O Meter brand would suit Sunbeam's Health Care category well. First Alert's products appear to be less related to Sunbeam's current product groupings, although they could still be sold through the same distribution channels.

Regardless of whether Sunbeam grows via narrow or broad concentric acquisitions, it is clear that Sunbeam could benefit from distribution and marketing synergies, scale economies in production, as well as economies of scope through either of these acquisitions. The question of which alternative to choose, if any, really comes down to a corporation's financial risk-tolerance (of which Al Dunlap appears to possess plenty), as well as whether the tentative purchase offers represent a fair market value for each of the three companies. With a price tag of $250 million on annual sales exceeding $275 million, Signature Brands appear to be more reasonably priced than for example Coleman, priced at $2 billion with $1.15 billion worth of annual revenues. Interestingly, Coleman has higher revenues than Sunbeam but its stock is trading well below that of Sunbeam, which is a clear indicator than Sunbeam's stock is overpriced.

Portfolio Strategies

After Dunlap had divested unprofitable divisions such as outdoor furniture, gas logs, electric blanket production, decorative bedding and outdoor clocks and thermometers as part of his downsizing in an effort to concentrate on the core business of electrical appliances, Sunbeam's business was still spread across a number of product categories or divisions: Appliances, Health Care, Personal Care and Comfort, Outdoor Cooking and Away From Home. Currently, all products are marketed either under the Sunbeam or the Oster brand name. Other than acquiring one or more of the above-mentioned companies, Sunbeam also has the option to either narrow its portfolio by eliminating certain product lines or to broaden its portfolio by developing new products. Although the company has a long tradition (since 1897) of producing animal clippers, it might be worth considering divesting its Away from Home division, which generates only 5% of revenues and, being directed to the professional and veterinarian trade, is sold through different channels than its four consumer oriented divisions.

Considering the growing demand for time-saving appliances and other "smart" devices for the home, Sunbeam could also pursue a line extension strategy consisting of products targeting "dual-career" households strapped for time, utilizing its familiar Sunbeam or Oster brands. (Sunbeam could potentially develop an entirely new brand, but that would most likely be too costly). The most feasible way of producing cutting-edge, "smart" appliances would be to form an alliance with a high-tech company that has significant expertise in digital and webenabled technology, such as Sun Microsystems (who developed the Java technology) or Sony. Being one of the pioneering companies that puts its name on such leading-edge products would provide Sunbeam with a new, potentially very lucrative, avenue for growth, effectively addressing Critical Issue #3. In addition, it might help form a more distinct image of the Sunbeam brand in the minds of consumers.

Parenting StrategyOut of Sunbeam's five product divisions, Appliances is not only the largest at 29% of domestic

sales and doing well internationally, it is also a category with a predicted growth rate of approximately 7-8% over the next 5 years. It is important that Sunbeam continues to invest in this line of business so the company can capitalize on the increased demand for small convenience appliances. By manufacturing these types of products, which tend to be more profitable than larger appliances, Sunbeam can also alleviate Critical Issue #3 to an extent.

COMPETITIVE STRATEGY

Sunbeam is currently pursuing a broad differentiation strategy in all of its product lines, although it is unclear what exactly separates Sunbeam's products from its competitors. According to A1 Dunlap, it is important to "carefully examine new interests as lifestyles change," thus Sunbeam may be attempting to distinguish itself as a leading-edge player in the "convenience" segment of the home appliances industry based on having innovative products. The wide range of Sunbeam's retailers, from Macy's and Bloomingdale's on the high-end to Wal-Mart and Kmart on the opposite side of the scale, indicates that its products are positioned all across the board. The company's traditional core competencies appear to be in the areas of efficient warehousing and distribution, while a more recently added competitive factor could be considered the organization's overall "leanness," enabling it to respond more quickly to customer needs.

The fact that Sunbeam is neither heavily invested in targeting a particular niche, nor solidly differentiated from its competitors in the minds of consumers, suggests that a competitive strategy of overall price leadership might be a viable alternative for Sunbeam to consider. With the recent cost-cuts, consolidation and operations streamlining orchestrated by Al Dunlap, it might just be an efficient enough producer to be able to compete on a price-basis. The fact that almost a fifth (19%) of Sunbeam's products

are sold at Wal-Mart illustrates its brands' appeal to cost-conscious shoppers.Another possible competitive strategy option could be to strive to be a best-cost provider. For the

same reasons as listed above, Sunbeam might be able to incorporate key product characteristics at a lower cost than competitors. In the wake of its recent high-profile company restructuring, Sunbeam could stress its newfound efficiency advantage to consumers and advertise that Sunbeam provides products with the best cost/value combination on the market.

RECOMMENDATIONS AND IMPLEMENTATION

CORPORATE LEVEL STRATEGIES

It is recommended that Sunbeam continue to pursue its overall goal of maintaining steady growth. However, as Critical Issue #1 spells out, Sunbeam would take on substantial financial risks by approving Al Dunlap's proposed acquisition of Coleman Company, Signature Brands and First Alert simultaneously. Nevertheless, some synergies in the form of distribution and other efficiencies achieved through an acquisition could better position Sunbeam for this future growth. To minimize the risks associated with assuming the very high level of financial leverage needed to execute the triple acquisition, while still achieving some growth through acquisitions, it is therefore recommended that Sunbeam acquire only Signature Brands USA at this time and drop any immediate plans to purchase Coleman Company and First Alert.

This recommendation will address Critical Issue # 1 and is based on the following factors related to the implementation of the acquisition: 1) Since most of the acquisition cost of Signature Brands is in the form of long-term debt, Sunbeam only has to shell out approximately $37 million in cash, which it can easily afford at this point in time. 2) Signature Brands' product lines will complement Sunbeam's current product categories in the Appliances and Health Care divisions. 3) Since 40% of Signature Brands' sales are through Wal-Mart & Kmart, it is already sharing a large portion of Sunbeam's distribution channels, which should simplify the integration of the two companies' respective management information systems. 4) The integration of one smaller company into a larger organization is usually easier to achieve than to unite 4 different companies, some of which are of similar size (Coleman and Sunbeam have comparable revenues as well as number of employees). 5) The fact that Signature Brands' product exclusively are sold domestically opens up the opportunity of growing further by marketing Mr. Coffee and Health O Meter through Sunbeam's existing distribution channels abroad.

In addition to completing the acquisition of Signature Brands, Sunbeam should continue pursuing a steady rate of growth through its current strategies of horizontal integration globally and capturing market share from competitors through differentiation (discussed in the competitive strategy section).

In terms of portfolio strategy, it is recommended that Sunbeam keeps its current product categories, since they are all profitable and related to Sunbeam's core business. To achieve further growth, thereby addressing Critical Issue #3, it is also recommended to explore opportunities for forming a strategic alliance with Sun Microsystems to manufacture "smart," time-saving appliances that will be in high demand in the future by increasingly busier consumers. The strategic alliance will lessen Sunbeam's required investment to develop the new product line as well as mitigate some of the risk involved. Some examples of the types of products produced by the joint venture would be portable coffee mugs with internet capabilities, mobile mini-refrigerators that can adjusts the temperature according to the environment for long journeys in a car, and remote controls that heat up your home and turns on lights before you get home. Given the coincidence of the two companies' similar names, the products should be sold under a separate, yet common, name, for example SmartSun or SunTech, to separate this cuttingedge product line from Sunbeam's standard products. This venture should give equal attention to manufacturing products using existing technology and investing in the development of smart appliances applications for the future.

Key implementation issues to address are: (a) where products should be manufactured (most likely at one of Sunbeam's existing plants), (b) who should design the products (i.e., should Sun Microsystems just supply the technology or should they also have a say in product design?), and (c) where they should be sold (most likely via Sunbeam's distribution network, but the Internet might be an alternate venue). It will also be important to include managers who have both packaged goods and technology industry experience to head up the project team.COMPETITIVE STRATEGY

While Sunbeam has several options to select from when formulating a competitive strategy for the future, it is recommended that the company adhere to its currently successful broad differentiation strategy. The company should aim to differentiate itself as a customerresponsive home appliance player that quickly adapts to lifestyle changes and new consumer needs. A broad differentiation strategy is not only firmly aligned with the recommended growth strategies of industry acquisition, a strategic alliance producing a line of products closely related in that it to Sunbeam's core business and continued globalization; it will also best address Critical Issue #3 allows for a higher profit margin than a price competition or best cost provider strategy.

Some recommended implementation strategies to aid Sunbeam in better defining its differentiation points include redesigning packaging, investing in some brand building advertising and emphasize its "lean and responsive" company culture to customers as well as suppliers and distributors.

OTHER STRATEGIES

Most of the strategies proposed to address Critical Issues #1 and #3 will also apply to Critical Issue #2 in the sense that they will provide Al Dunlap with a strategic direction with which to embark on his new career as "long-term CEO" of Sunbeam. However, it is recommended that Sunbeam's Board of Directors have a contingency plan in place to quickly replace Dunlap should he prove unsuccessful in leading Sunbeam in the long run. Even a loyal assembly of board members and fellow executives will have no choice but to substitute the turnaround specialist Dunlap with a dynamic industry expert, who will most likely be a superior choice for leading the company given the above recommended concentration strategies emphasizing horizontal integration.

Appendix 1 - Financial Ratios Comparison Table

Sunbeam 1997

Industry 1997

Sunbeam 1996

Industry 1996

Sunbeam 1995

Industry 1995

Sunbeam 1994

Industry 1994

Profitability:

Net Profit Margin

9.4% 2% (23.2%) 2.5% 5.0% 3.6% 10.2% 2.2%

ROE 20.5% 5.4% (57.8%) 9.6% 8.4% 13.7% 19.3% 10.7%

Leverage:

Debt to equity 0.63 0.41 0.89 0.37 0.48 0.42 0.49 0.44

Liquidity:

Current Ratio 3.32 1.35 2.30 1.05 3.17 1.05 2.63 1.00

Activity:

Asset Turnover

1.04 0.98 0.92 1.02 0.88 0.95 0.94 1.09

Note: Industry averages were computed using financial figures from Whirlpool and Black & Decker obtained online from Standard & Poor's Stock Reports.

Appendix 2 - SWOT Table

Strengths

* Sunbeam products are marketed to a wide variety of retailers* Strong warehousing and distribution capabilities including EDI and JIT systems* Oster brand name is market leader in several Latin-American countries* Sunbeam and Oster brands both hold high market shares* Endorsement agreement negotiated with the American Medical Association* Organization is leaner and more efficient due to restructuring* Revenues, profitability, and ROe are up after cost-cuts

Weaknesses

* Sunbeam is highly reliant in judgments made by powerful and autocratic CEO, Al Dunlap* Dunlap made 180-degree turn in strategy from downsizing and focusing on core business to proposing concentric as well as unrelated acquisitions* Dunlap lacks experience in managing a corporation in the long run* Layoffs and other drastic changes may lead to employee resentment and lower loyalty to company* Negative publicity surrounding alliance with the AMA* Stock price may be over-valued, leaving a false impression of the true value of the company* High dependency on large accounts with Wal-Mart and KmartOpportunities

* Switch to 220-volt electrical products should increase sales in Asia region* Higher consumer demand for small, time-saving appliances* American appliance products have increased appeal in the global market* Emergence of Asmart appliance@ technologies

Threats

* Proposed acquisitions would leave Sunbeam highly leveraged and strapped for cash* The home appliance industry is a mature industry facing price pressures and a squeeze on profits* Economic slowdown in Brazil could dampen South American market* Asian financial crisis lowers demand in Asian region

Appendix 3 - Porter's 5-Force Analysis Detail

Internal Rivalry

Internal rivalry in the home appliance industry is high due to the following conditions:

$ Industry growth rate is relatively slow at a projected 7.5% per year (based on the following estimated future sales figures provided on page 3 of the case): 1997:$72.495 billion, 1998:$77.915 billion, 2000-2002: $99.960 billion$ There is a large number of competitors jockeying for market share$ Customer switching costs are essentially non-existent$ Products are viewed as relatively standardized, and competitors rely on added "bells and whistles" to the products to differentiate themselves

Threat of Substitutes

Since an increasing portion of industry products are geared toward consumers who are looking for convenient, time-saving items, industry firms would be relatively vulnerable in an economic recession. Because these types of products aren't necessities by any means, price sensitivity is high and consumers will switch to less expensive substitutes if their discretionary incomes decrease. Some example of substitutes would be to wash dishes by hand instead of using a dishwasher, cut a bagel with a regular knife instead of a bagel cutter, buy pre-ground coffee instead of buying a coffee grinder and squeeze oranges by hand to make juice instead of purchasing an electric juicer. Overall, the threat to industry profits from substitutes is moderate to high.

Bargaining Power of Buyers

Buyer bargaining power is normally low for an industry with many distributed, individual consumer purchases of its products. However, retailers could equally be considered buyers of the products sold by firms in the home appliances industry. Since a hugely successful discount retailer such as Wal-Mart have a large say in which products to carry, it follows that they have significant bargaining power. Correspondingly, smaller retailers have less of a choice and thereby less bargaining power to bring to the table. Additionally, shifts in consumer preferences can largely impact industry firms, thus buyers (if defined as consumers) could collectively be considered powerful. On the whole, bargaining power of buyers is a moderate threat to the home appliances industry profitability.

Threat of New Entrants

The home appliances industry is relatively unattractive to new entrants due to its high penetration and low level of profitability. In addition, there are relatively high barriers to entry in the form of restricted access to distribution channels and capital requirements involved in product design, manufacturing and marketing. In summary, the overall threat to industry profitability by potential new entrants is low, for the following reasons:

$ Low profit margins$ Customer switching costs are very low$ Existing firms have marketing advantages through already established brand names and differentiated products$ The likelihood of an industry shock or discontinuity is low

Bargaining Power of Suppliers

Since industry firms tend to manufacture their own products, industry suppliers would be the providers of raw materials. There is no indication of any difficulties in obtaining these raw materials; thus, bargaining power of suppliers is estimated to be a low threat to industry profits.

Porter's 5 Force Analysis Summary Model

Potential Entrants(Unattractive industry)Overall Assessment:Low threat to industryprofitability.

Industry CompetitorsBlack & Decker

Suppliers Maytag Buyers(Raw materials) Whirlpool (Consumers or retailers)

General ElectricOverall Assessment: Admiral Overall Assessment:Bargaining power of Magic Chef Bargaining power ofsuppliers is a low threat Electrolux buyers is a moderatethreat to industry profitability threat to industry profitability

Overall Assessment:Internal rivalry is a highthreat to industry profitability

SubstitutesWashing dishes by hand,buying pre-ground coffeebeans, squeezing juice manuallyOverall AssessmentThe threat of substitutes is amoderate to high threat toindustry profits.