Case Study

$$ HBR$\text{'}$s fictional case studies present dilemmas faced by real leaders and offer solutions from experts. They appear at hbr$.$org prior to publication here.

The CFO charged with analyzing the pros and cons of a new product line wonders whether it's time for her to stop facilitating$--$and start leading

Shirley Rickert sighed as she realized that she had no hope of making the $7$:$10$ express tonight. She turned back to the reports she was reviewing at the request of her CEO, Carl Switzer.

As the chief financial officer of HGS$,$ a large plastics and packaging materials company, Shirley was accustomed to having the occasional fire drill disrupt her routine. This time it involved an increasingly heated internal debate that Carl wanted her to help moderate.

The good news was that HGS$\text{'}$s research$-$and$-$development department had stumbled upon a new plastic polymer that was stain$-$resistant, wrinkle$-$proof, and virtually indestructible, and yet looked, felt, and draped just like cotton$--$a perfect material for making men's dress shirts. The bad news was that senior executives in the company were bitterly divided over whether and how to use the fiber$--$now referred to internally as "Plasticware"$--$as a means to enter the apparel industry.

Shirley allowed herself a moment to stretch. As she rolled her neck, wincing, she heard voices in the hallway outside her office.

"He'll tell you he's an $11$ handicap. You can bet on that. Hey, I'll catch you later, Carl. Just need to grab Shirley for a minute."

She looked up to see Scott Beckett, the vice president of HGS$\text{'}$s most profitable division, Oil and Gas Products, filling her doorway. "Hope I wasn't too abrasive today," he opened. $"$It would be a shame to get people all riled up just when we need a balanced and rational review of the facts."

$"$Oh$,$ Scott, we expect straight talk from an old oil and gas man. I think you made your position on Plastiwear quite clear$--$again." Shirley motioned for him to sit.

"I'll keep saying it$,$ but I don't get the feeling everyone is listening."

"Well, some people around here like the idea of investing in a patented technology that could open up new and exciting businesses for us$.$ But I understand your reluctance to wade into the unknown."

"It's not the unknown. It's an intensely competitive market!" Scott scoffed. "Look at the forces at work in men's shirts. The suppliers are an oligopoly, buyers are large and ruthless about pricing, and there's no way to create any customer loyalty in such a crowded playing field. Even if we partnered with an existing shirtmaker, our patent on the fiber would be ridiculously expensive to defend, so in no time we'd be in price wars with copycats all over the place."

"Well, that certainly sounds like a textbook no$-$go$.$ I$\text{'}$m sure the VC firms that turned down Starbucks came up with a similar analysis of the coffee shop industry." Shirley said this with a smile, but Scott still grimaced. "Look, I do understand your point of view. We'd struggle to compete on our own in retail, and it would be tough to manage outside partners in a business we don't know. There's no question it would be an uphill battle. But some people think it's a battle we should fight. And not just inside these walls. You know MG Management has been buying up our shares, and a lot of people think it's with a takeover in mind. They're meeting with Carl next week to discuss taking two board seats and addressing our 'failure to leverage new technology,$\text{'}"$ she said, making air quotes as she cited the letter the private equity firm had sent Carl. "Don't you think they've somehow learned enough about Plastiwear to smell money?"

"Those guys might see themselves making billions with shirts$--$or some other Plastiwear$-$based product line. And maybe they could take us over and pull it off. But at what cost? Everyone is already working flat out to get GreenPlastics off the ground$--$and doing amazingly well, I might add. Preorders are already in the tens of millions, and we make even more if we deliver early. And don't forget about the Cleveland plant expansion. Do we really want to divert our people, our time, and our money away from these projects? And, longer term, if we chase this Plastiwear pipe dream, how many other opportunities in our existing$--$I'll say it again$--$successful B$2$B businesses, investments with less risk and more reward, will we miss out on$?"$

Scott rose and moved to the door. "I don't want to keep you, Shirley. I just want to make sure a few of us have our heads screwed on straight and won't be squandering our shareholders' money on a doomed venture. Good night."

Shirley let him go$,$ neither confirming nor denying that she'd oppose the Plastiwear project. In fact, she could easily make a case either way, and she'd asked her team to model a break$-$even scenario. But Carl wasn't requesting that she take a side. As always, he was relying on her to give him levelheaded, rigorous analysis, to vet the due diligence, and to clearly articulate the different points of view.

She excelled at this sort of facilitation, and in every review she'd had since joining HGS$,$ Carl and other colleagues had told her it was what they valued most about her. She was fair and balanced, without any agenda except the financial health of the company.

Sometimes, of course, the answer to a question was so obvious that presenting the facts was tantamount to making a recommendation. But the Plastiwear decision wasn't clear$-$cut, and there would be serious political fallout for backing either Scott or his opponent on the issue, Walter Albright, VP of research and development. Both were highly influential at HGS$,$ and she'd once heard Carl remark to a board member that he could see either man in the CEO seat one day.

Shirley shook her head as she tossed her laptop, BlackBerry, and files into her oversize handbag. If she hurried, she would just make the $7$:$45$ train.

A Miracle Opportunity

In the lunchroom the next day, Walter Albright and Jerry Tucker, one of the senior R&D scientists, were seated and deep in conversation when Shirley set her tray on the table and circled back for salad dressing and extra napkins. When she returned, they were eager to draw her in$."$So glad you suggested we meet to discuss Plastiwear," Walter began. "The models you were asking about are quite conservative, as you probably noticed."

As Walter paused to sip his coffee, Jerry nodded and chimed in$.$ "The revenues could easily be twice our projections, and the growth rapidly accelerates as you goose up marketing. Even with a much tougher hurdle rate and a higher initial investment, the payoff is terrific."

Shirley smiled. A few years ago she would have rolled her eyes at the lab$-$geek enthusiasm. But these guys knew what they were talking about. The last time she'd questioned one of their new$-$product proposals$--$and indeed shown Carl where she thought they'd gone wrong in their estimates$--$they'd secured approval for a pilot anyway and outperformed even their own expectations. Walter wasn't the "I told you so$"$ type, but Shirley had worried about offending him ever since.

"I noticed that you built the dynamics into the spreadsheet," she said. "Nice work. But my questions aren't about the mechanics of the model. I want to hear more about the commercialization process. Now that you've invented this miracle fiber"$--$she nodded to Jerry, who was commonly acknowledged as the genius behind Plastiwear$--"$do you foresee any difficulties in scaling up production?"

"Commercialization should be easy," Walter said. "You know we've got a great track record of moving new ideas from the lab to full production. To us$,$ this isn't much different. We have a winning formula, and the prototypes are terrific."

"But this is obviously a very different type of product for us$,"$ Shirley replied. $"$So$,$ looking back, what's the closest precedent we've had?"

The two men didn't answer directly but instead spent the next $20$ minutes sharing stories of their various experiences turning new discoveries into highly profitable business lines. "And so$,"$ Walter concluded, "the point we're trying to make by giving you all these examples is that$--$even though it's a totally new market for us$,$ given our history$--$we think we can do the same thing with Plastiwear."

Jerry glanced at his watch. "Sorry, I have to run to a meeting, but let me know if I can get you any more information."

"Thanks. I'll be in touch." Shirley turned to Walter. $"$It sounds like you two have been really thorough in your cash$-$flow projections. I'll admit I thought they might be overly optimistic, but your logic seems solid. Of course, you know that Scott Beckett has concerns about our managing an apparel business. He projects substantial losses if we go down the path you suggest."

Walter gave her a patient smile. "Yes, I realize that if you load up the front end with environmental regulation compliance; big investments in property, plant, and equipment; and sales that are slow to ramp up$,$ the net present value you get will indicate that this is a losing bet. And I know it's hard to imagine a plastics and packaging company doing fashion well." His honest appraisal took Shirley by surprise. "But you know Scott has an agenda. There are ways to make it work, and we really don't see how it could play out badly.

"Besides, beyond the numbers, you must realize this is a great opportunity to reenergize HGS$.$ We stumbled upon this fiber, and it really is near perfect, with so many possibilities for us$.$ Imagine stain$-$proof shirts that look as good as anything you get at Thomas Pink. Imagine indestructible canvas tents. Imagine..." Walter caught himself and looked at Shirley. "I'll stop. But I hope you and Carl understand how important this could be for us$."$

"I see what you mean," Shirley said, rising to bus her tray. "Thanks for taking the time to chat."

Upping the Stakes

Shirley clicked off the timer on her BlackBerry more brusquely than she'd intended and drew a deep breath. "Can we sum up for today? I think we've made some good progress."

Brian Hanrahan, a senior financial analyst and Shirley's go$-$to number cruncher, volunteered. $"$In summary, MG Management wants to acquire a substantial stake, and we have no direct way to block them. However, if we make a public announcement of a revised dividend policy, an acquisition in one of our core areas, or a large near$-$term investment decision, they might back off a bit. We could also quickly sell off the rights to Plastiwear or jump into a joint venture."

Shirley's regularly scheduled meeting with her staff had been co$-$opted to discuss the private equity firm's recent share purchases and the possibility of a takeover attempt. "Keep this discussion quiet," she reminded the group, "and take care you don't leave these documents out where anyone might see them, in or outside this building."

She left the room last, walking slowly and thinking about Plastiwear. Deciding what to do was complicated enough, with some of the most powerful people at HGS making strong, albeit self$-$interested, cases on both sides of the argument. MG$\text{'}$s involvement only increased the stakes, and she had no doubt that Carl would want her analysis of the situation on his desk first thing in the morning.

Back in her office, she sat down at her computer and began typing out a neutral executive summary page. After a minute she stopped.

Was her usual impartial approach really adequate in these circumstances? Wouldn't it be better to not only evaluate the options and provide perspective but also make a recommendation about a course of action? Wouldn't it be better to show Carl and the other senior executives that she could make tough choices, too?

The problem was, the models weren't giving her an answer. All the outcomes $($profit$,$ loss, breakeven$)$ were feasible. This was a difficult strategic decision, fraught with political risks. Supporting either faction would mean alienating the other, perhaps irreparably damaging relationships and, as a result, limiting her career options at HGS$.$

Besides, even if she did offer Carl advice, there was no guarantee he would take it$.$ He was famous for "going with his gut."

Would he respect her more for going with hers? Or for presenting both sides of the argument so that he could make his own decision?

With gnawing unease, she looked at her screen and deleted the text she'd drafted. Should she rely on her traditional strengths or demonstrate new skills?

Assignment $1$

Answer the following questions for your assigned case study:

$1.$ What caught your attention and why? $($Effect or outcome experienced by characters in the case study$)$

$2.$ What was the problem the case highlighted and what did it require to solve it$?($The cause that resulted in the outcome experienced by characters in the case study$)$

$3.$ How did the case study resolve the problem? $($The solution$)$

$4.$ What course concepts align with the case and what are your learnings from it$?($Analysis of the situation and alignment with course concepts$)$

$5.$ If you were to solve it differently, what would you do and how would you do it$?$