Melissa Roberts 9610377

Global Strategy & Leadership S2 2013

Case Scenario 1 Pacific Brands

The aim of the restructuring strategy of PacBrands is to refocus the business on brands and move away from manufacturing. It requires a major restructuring including cost-­‐cutting; reorganizing capital management and debt financing, simplifying logistics and operations, sourcing production offshore and developing capabilities required as a brand marketer.

Question 1 – 4 Marks Question 2 – 8 Marks Question 3 – 6 Marks

Page 1 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Module 1: An introduction to strategy and leadership

The global context of business (Drivers, challenges, benefits of globalisation, value of localisation) Page 1.28 Drivers of Globalisation • Competitive Forces -­‐ The ability to effectively offshore manufacturing to reduce costs has been possible because of globalization. The pressure of competitors offshoring has been a driving force for PB to follow suit. If they continued to manufacture domestically, their costs to manufacture would be a lot higher than competitors; if they were to compete on price, their profit margins would be too small. There is minimal loss of quality and a large reduction in costs as PB and its competitors offshore manufacturing to countries that can do it much cheaper than can be done locally. • Technological Forces -­‐ Advances in transport and communication have allowed the offshoring of the manufacturing to be a practical and a realistic option. The cost of transportation by sea and air has reduced significantly and the advances in communication have meant it is all very possible. PB can offshore its manufacturing very cost effectively with very little impact on the customers, other than their perception of the brands. • Social Forces -­‐ The convergence of tastes around the world now means that consumer preferences may be similar in any international market. This has opened up the possibility of market development. • Political Forces – The lowering of trade barriers (e.g. tarrifs) means that markets that were not accessible before, are now accessible. This again, has enabled PB to consider market development more easily. Benefits of Globalisation • Cost Benefits – Economies of scale; PB could sell to many markets across the globe and achieve economies of scale by selling so many like products. • Timing Benefits – Offshoring my increase the speed to market as the capabilities in manufacturing might be greater offshore. • Learning Benefits – • Arbitrage Benefits – Raw materials may be cheaper to source by the overseas manufacturer which would reduce the cost base further (than just offshoring manufacturing but still purchasing raw materials themselves). Impact of Globalisation on Pacific Brands • Impact of globalisation on manufacturing locally had caused a changing market and Pac Brands was in desperate need to make changes and adapt to the new market; Morphet “It was an industry that had become redundant” Pac Brands couldn’t compete against its competitors as ‘It was trying to sell goods that cost more to make than its competitors.’ Morphet identifies the changes were needed to deal with changing markets. She moved away from the company’s previous approach of growth via brands and turned it towards product focus. This included the selling off of many brands that didn’t fit the new strategy like Wrangler & Lee and Dunlop Foams & Sleepmaker; while expanding on current consumer and textile brands like Sheridan.

Page 2 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Module 2: Understanding the external environment (External Environment – everything external to the organisation including but not limited to: Industries, Markets, Political Forces, Regulations, Environmental Issues, Society, Technology and a variety of other factors)

Industry Definition (The grouping of similar economic or commercial activities that produce goods or services) Page 2.7 • • Pacific Brands operates within the Australian Consumer Goods & Textiles Industry. Textile, Clothing and Footwear Wholesaling in Australia industry PacBrands operates within four segments of this industry: Underwear and Hoisery; Workwear; Homewares; and Footwear, Outerwear and Sport.

Markets (Within the Industry, there are several markets. Market is a group of consumers with similar needs, or a geographical area with a targeted focus)

Page 2.51 • Geographical markets: Only known geographical market is Australia but operations in NZ, UK, Malaysia, China and Indonesia • Customer Markets: retail customers, online customers, end user consumers (Sheridan shops)

Industry Value Chain Page 2.9 • Raw Materials – Raw Materials Processing -­‐ Product Design – Product Manufacturing – Wholesales -­‐ Logistics and Distribution – Retailing and Merchandising – Consumer • Pacific Brands operates primarily as a wholesaler in the industry but they are vertically integrated, also having operations in manufacturing, design and retail to an extent. The value chain is international with operations in many countries. • “position as a market leading supplier of everyday brands to the Australasian retail marketplace”

Industry Segments (segments are based on the characteristics of products or services, can be several of these within an industry) Page 2.16 • PacBrands operates within four segments of this industry: Underwear and Hoisery; Workwear; Homewares; and Footwear, Outerwear and Sport. No indication of what the other industry segments might be.

Industry Life Cycle Page 2.18 • Australian retail industry overall is in the mature stage nearing decline; with the possibility of renewal from innovation and online channels. • Australian wholesale industry overall is in the mature-­‐declining stage as retailers pursue “direct sourcing strategies” i.e. cutting out the wholesaler and buying from the manufacturer. • Signs that PacBrands are in a mature to declining industry: They are cost-­‐cutting (offshoring, reorganizing capital management and debt financing), and focusing on efficiencies (simplifying logistics and operations, removing complexity). Buyer power is high; key example is Kmart direct sourcing from their own manufacturer. Remote Environment Analysis (PESTEL) (factors influencing past growth in the industry and what is expected to drive future growth?) Page 2.23 Nature of Impact Factor Issue (+/=/-­‐) • Politically charged environment – due to the offshoring of the manufacturing industry in Australia. This Political -­‐ could possibly create tighter regulations for industries that are heavily offshored. • Retail environment is a tough one to operate in post GFC. Consumer spending is down on discretionary -­‐ items (such as PacBrands products).

Economic + • Most of the Australian manufacturing industry has been moved offshore. PacBrands decision to follow suit places them in a better economical competitive position -­‐ • Rising costs of inputs (cotton, Chinese labour and freight) • The offshoring of the Australian manufacturing industry has had negative connotations attached to it with perceptions of poor conditions and wages as well as a reduction in the perceived quality of goods that were -­‐ Social once manufactured in Australia. =/-­‐ • Because of the GFC, consumer behaviors are changing and they are either targeting a particular brand (the number one brand) or buying the cheapest option (price-­‐point offer) and retailers are following suit. • The internet, one of the drivers of globalization, has enabled retailers to buy directly from manufacturers or -­‐ designers. PacBrands has a manufacturing business but retailers (e.g. Kmart) have still opted to go to an independent manufacturer to supply their stores. Technological • Online channels for retailers have become very popular. Characterized by low overheads and fixed costs = and therefore lower prices. The could be an opportunity for PacBrands to forward integrate but also means competition has increased. • Retail environment is fickle (can this be included here or is this a result of all of the above factors??) and Environmental -­‐ leaves no margin for error Legal

Total – All factors •

Summary – Based on the above analysis and the fact that the wholesaling industry is in decline, the future growth prospects of the wholesaling industry are poor. Consumers, and therefore retailers, are very price sensitive. With the rising costs of key inputs, it is becoming difficult to remain competitive, especially in an environment where technology and globalization are making it easier for wholesalers to be cut out completely thereby reducing costs.

Page 3 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Industry Environment Analysis (Forces that determine the profitability of the industry? Current and expected profitability of the industry? How are the forces changing? Will the industry be more or less profitable than today?) Page 2.38 Five Forces Threat of New Entrants Supplier Power Industry Rivalry Buyer Power Substitutes Impact High Medium – High High High Reasons • Customers are starting to vertically integrate, selling their own labels effectively making wholesaling redundant. • Suppliers are able to negotiate to sell (possibly at higher prices) direct to retailers. • Assumedly easy to switch to alternative suppliers of cotton and other inputs. • Unknown, the case does not provide information on this element however, as the industry is in decline, it can be assumed that industry rivalry is high as there are fewer competitors in the industry. • Retailers are able to source directly from their own manufacturers and have their own in-­‐house labels. • There are many substitutes; no-­‐name products, indirect substitutes like spending disposable income on a holiday instead of these items.

•

Summary – based on the above analysis, particularly the fact that wholesalers may be cut out of the value chain, indicates that the future profitability of the industry is likely to be below average.

Blue Ocean Strategy – Four Actions Framework & Value Innovation (Creation of new undiscovered markets through innovative activities) Page 2.54 • Value Innovation – Area in which an organisation’s activities provide cost benefits for the organisation whilst improving its value proposition to consumers. • Reduce – The products that are not performing well in terms of profitability or growth prospects. • Create – Low cost options or luxury options; to compete in all customer demographics. • Raise – the quality of existing products to ensure that reputation is not damaged by offshoring Aussie brands. • Eliminate – the retailer by forward integration i.e. becoming a retailer themselves.

Page 4 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Module 3: Understanding the internal environment (Internal Environment – the internal influences and performance of an organisation, identifying and focusing on the operational drivers, along with ensuring efficient organisational and people performance) (Objective – understand current performance in order to drive future strategic options; growth, products/services, markets, differentiation, industry position) Understanding Key Stakeholders (key business strategy components generally originate from the requirements of key stakeholders) Page 3.5 • • Stakeholders – any person or group of individuals, internal or external, that has an interest in or impact on the business or corporate strategy. They have the power to influence the strategy or the performance of the organisation. Steps to follow (to gain a thorough understanding of the key stakeholders and their impact on the organisation): 1. Identify stakeholders – community, board, suppliers, customers, government, shareholders, competitors, employees 2. Alignment of stakeholder needs – assessment of whether stakeholder needs align with the current strategy, ensuring stakeholder needs are considered and met (if possible) in the development of new strategy 3. Assess stakeholder groups – Power-­‐interest grid – subjects, players, crowd and context setters 4. Understand the impact and influence of stakeholder groups – Impact-­‐influence grid – consult (subjects), partner (players), inform (crowds), manage (context setters).

1 & 2. Identify stakeholders and align stakeholder needs Key Stakeholders’ Objectives Stakeholders Board • Improved financial position (Chairman) • Removal of pressure from banks over debt levels (reduction of debt) • Brand reputation maintained • Sales increases • Long-­‐term sustainability CEO Sue • Maintain reputation as a successful Morphet CEO • Remove PacBrands from the brink of collapse and remove complexity Shareholders • • • • • Remove the risk of receivership Increase value of investment Dividend increasing Receive loan repayments Buy products at as lower price as possible under the current tough conditions Maintain the Aussie Brands

Alignment to objectives; met/not met • • • Met – Debt is reducing, dividends have been reinstated, margins improving, earnings increased 30.1%. Not met – Sales fell and write-­‐downs pushed the company to a $166M loss Brand reputation may have been impacted negatively from the offshoring of manufacturing and the divestment of many brands. Somewhat met – She was criticized for many of her decisions and praised for them as well. Ultimately her decisions saved the company so her reputation may have been upheld. Met – Company improved financially and avoided receivership. Complexity was removed by offshoring production and minimizing brand coverage. Met – Company is still trading and trading more strongly financially after strategy implementation. EBITA increased 301% to $104.5M Met – Dividends have been reinstated Met – debt is reducing Not Met – evidenced by Kmart dropping Bonds. Met – offshoring production means reduced costs and arguably reduced prices for retailers. Not Met – Stakeholders feel let down that manufacturing has been sent offshore. Manufacturing was primarily undertaken in small towns, job losses would have affected these communities negatively Met / Not-­‐Met – Manufacturing employees were made redundant but this move may have made secured long-­‐term jobs for remaining employees Unknown – not enough detail to determine if Analysts statements were correct Not Met – Disaffected few in the business community failed to face up to such unpalatable decisions i.e. they were still manufacturing locally at a higher price reducing their competitive advantage (assuming that price is a Key Success Factor)

•

• • • • • • •

Bankers Retailers

Community

•

Employees Analysts Competitors

• • •

Stability of employment Ability to predict outcomes accurately To secure and maintain competitive advantage

• • •

3 & 4. Assess stakeholder groups; understand their impact and influence Subjects (high interest, low power) Players (high power, high interest)

Consult (High influence, low impact) Partner (high impact, high influence) Employees Retailers Crowd (low power, low interest) Inform (low impact, low influence) Community • • • • Board CEO Sue Morphett Shareholders Context Setters (high power, low interest) Manage (high impact, low influence) Analysts Bankers Competitors

Consult – consult with these about the organisation’s key decisions Partner – partnered with the organisation in developing its objectives and ultimate strategy Inform – inform these stakeholders of the organisation’s objectives and direction Manage – manage their expectations and requirements

Page 5 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Assessing current performance (Objective is to understand current performance in order to drive future strategic options including:) Page 3.11 • How might the organisation plan for growth? – In the short term, the organisation is focusing on cutting costs and reducing brands to enable greater focus on key brands. They have a short-­‐term requirement to improve current financial position in order to shore up their long-­‐term sustainability. Their growth options are not detailed within the case but there is a hint of some vertical integration into the retail space. What future products/services could it deliver? – The case has not provided information about the future products/services that will be offered other than stating that they will be focusing on the existing brands that have been maintained (after the brand-­‐cull). There is some information relating to the retail sector being ‘polarised’ meaning that consumers either want an absolute bargain or they’re making allowances for luxury items. This implies that mid-­‐tier products are not competitive. Pacific Brands may need to consider a low-­‐cost generic strategy or to enter the luxury product market. What markets and customers will it service? – It is currently servicing the supermarket and department store customer markets in Australia. In the future, there may be options to service individual consumers directly, online customers as well as customers in new geographic markets. How will it differentiate against its competitors? – It currently differentiates based on its ‘Aussie’ image. This may have lost some credibility due to the manufacturing being outsourced. In the future, as stated previously, because of the polarized market, they may need to differentiate based on cost or product quality. What position does it hope to hold in the industry in the future? – There is no information within the case stating what their desired future position may be.

•

• •

•

Balanced Scorecard (performance management tool; translates strategy into linked causal activities in different parts of the organisation, and in turn motivates behavior; represents a stakeholder approach but shareholder value is represented in the financial section) Page 3.30 Perspective Financial Examples relating to Starbucks Ltd Performance Weak but improving performance overall, made up as follows: • Then -­‐ was teetering on the edge of collapse (during GFC) • Then -­‐ carrying more than $800M in debt and market capitalization that had sunk to $100M (during GFC) • Now -­‐ $175M write-­‐down for the Footwear, Outerwear and Sport Business • Now -­‐ Sales down in department stores and supermarket channels • Now -­‐ Restructuring plan is costing more than planned but on track to deliver $150M net cost savings • Now – Debt is reducing • Now – Dividends have been reinstated • Now – Sales fell and write-­‐downs pushed the company to a $166M loss • Now – Margins have improved strongly • Now – First-­‐half EBITA increased 30.1% to $104.5M Weak performance overall, made up as follows: • Kmart replaced labels like Bonds with its own home-­‐brand products (due to Kmart strategy) • Sales down in department stores and supermarket channels • Changing customer behaviors -­‐ consumers are either targeting a particular brand (the number one brand) or buying the cheapest option (price-­‐point offer) and retailers are following suit. They will justify a luxury brand for some purchases but hunt down a bargain for more mundane goods; leaving the mid-­‐tier brands behind. • Reduced product range to focus on key brands • Perceived poorly by consumers for offshoring ‘Aussie’ brands Unable to determine performance overall due to lack of information • Improved efficiencies and lowered costs by offshoring manufacturing • Simplifying logistics and operations – unknown how successful this has been • New management team employed; assume this would result in improved processes Unable to determine performance overall due to lack of information • Learnt that the strategy to grow by increasing the number of brands is not suitable to their business • Reducing its brands to enable greater focus on key brands • Boosted local design abilities • Expanded the Sheridan brands • Appointed a new very experienced senior management team

Customer

Internal Processes

Learning & Growth

Page 6 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Extended SWOT Page 3.46 & 3.53 Weaknesses • Department Store and Supermarket channels’ sales are down • Reliance on cost cutting to improve margins • High debt level and low market capitalization • Offshoring the manufacturing might negatively impact the reputation of the brands because of the perception that goods are now made in ‘sweat-­‐ shops’ • PacBrands don’t fall into the luxury product category or the cheapest option so their products (mid-­‐tier) may not have a competitive advantage in the current climate • Lagged behind competitors in the move to offshore Opportunities Threats • Forward integration; occupying the retail space in the value chain by • Other customers vertically integrating (following Kmart) and selling their selling direct to customers using online or physical retail channels own labels (i.e. direct-­‐sourcing and cutting out the (wholesaling) middle-­‐ man). • Developing a low-­‐cost; no name product line to target customers wanting the price-­‐point offer • Analyst believes the strategy is flawed and destroying value. Analysts opinions can sometimes impact performance if society believe what they’re saying. • Rising costs of inputs (cotton, Chinese labour and freight) • Changing customer behaviors -­‐ consumers are either targeting a particular brand (the number one brand) or buying the cheapest option (price-­‐point offer) and retailers are following suit. They will justify a luxury brand for some purchases but hunt down a bargain for more mundane goods How can Pacific Brands use organisational strengths to take advantage of opportunities? • Could leverage their brand strength to vertically integrate and enter the retail area of the value chain. What options does Pacific Brands have that address weaknesses to take advantage of opportunities? • Vertical integration would eliminate the reliance on department store and supermarket sales. • Low-­‐cost, no name option would not have the negative connotations attached to PacBrands existing brand portfolio and could target a different customer market How can Pacific Brands use strengths to avoid threats? • Pacific Brands could focus their marketing more strongly on the ‘Aussie’ factor to compete with no-­‐name alternatives How can Pacific Brands develop defensive strategies that address weaknesses and threats to the organisation? • To reduce the impact of sales being down in department stores and supermarkets and to reduce the impact of further customers ‘cutting out the middle man’, Pacific Brands should vertically integrate and move into the retail space.

Gap Analysis Page 3.47 Area of Focus Description External Environment – Business Strategy Gaps Remote Environment Gaps • The Australian Retail Industry is the major customer of Pacific Brands and the industry is nearing decline. • Consumers are increasingly using online channels to purchase goods because of its convenience and the often-­‐ reduced prices. • Globalisation is making it easier for customers to cut out wholesalers. • Discretionary spending is down and consumers are seeking out bargains where possible but making allowances to buy luxury items (polarized market). Mid-­‐tier items are getting less popular. Industry Environment Gaps • The organisation is facing an overall lack of profitability. • Buyer power is high due to the ease of being able to switch to alternative suppliers or get their own labels manufactured, cutting out the wholesaler completely. Industry Competitors’ Gaps • Competitors were able to produce items for a lower cost because they had offshored their manufacturing sooner. • No other information provided on competitors. Internal Environment – Business Strategy Gaps Key Stakeholder Gaps • Kmart dropping the Bonds brand has put pressure on PB to lower prices to other customers to avoid them following Kmart’s lead. • Australian consumers may perceive the brands as not being truly Australian anymore and question the quality of the goods now that they’re manufactured overseas. • The communities affected by job losses may be heavily impacted due to the lack of enough jobs in those small communities for all of those made redundant. Strategic Driver Gaps • No information provided on competitors strategic drivers or benchmarks Organisational Performance • Two-­‐thirds of the way through the program; costs are more than anticipated but it’s on track to deliver net cost Gaps savings of $150M in 2011. • Debt has been reducing and dividends have been reinstated. • Sales fell and write-­‐downs drove a $166M loss. • Margins have improved strongly (perhaps because of cost cuts to marketing and advertising) Capability Gaps • If Pacific Brands lose their ‘Aussie’ image, they may lose their only competitive advantage and lose sales to no-­‐name brands or more luxury brands.

Strengths • Strong Aussie branding • Well known brands • Brands cover a diverse product range • Highly experienced management team with (from retail, telecommunications and other industries) • Strong market focus • Strong local design abilities

Page 7 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Summarising organisational performance Page 3.51 • Over the past three years, Morphet and her senior management team have taken drastic steps to reduce costs and increase profits. Although losses are still being realized and sales have fallen, some improvements to the financial performance of Pacific Brands have been shown. These include dividend reinstatement, reduced debts and increased EBITA. These results may be skewed slightly by the reduction in marketing and advertising budgets. Pacific Brands have offshored their manufacturing, which is another successful cost cutting initiative however; the rising costs of inputs (cotton, labor, freight) may slow down any financial improvements that have been seen. The industry overall is in decline and Pacific Brands have seen Kmart, one of their key customers, withdraw one of their key brand (Bonds) from their shelves. This could be the start of a growing trend where retailers cut out wholesalers completely which would have dire consequences for Pacific Brands unless they have vertically integrated.

•

Page 8 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Module 4: Product and market development

Product and market options • The Ansoff model is all about growth through penetration, product and market development and diversification. Pacifica Brands are not pursuing any of these options at the moment. They are focusing on reduction, as opposed to growth. Reduction, as opposed to growth • Divestment is a reactive and deliberate reduction in the size of a business. It can be prompted by legal, strategic or market-­‐based reasons. It is implemented primarily to align the organisational capabilities and sharpen the strategic focus. Typically, the immediate outcome of divestment is a decrease in the physical size or scope of an organisation.

• Pacific Brands are divesting parts of their business with the objectives of reducing costs and complexity as well as to increase their focus on fewer, better performing brands. Their resources will no longer be spread so thinly across so many brands. They have removed their manufacturing operations, offshoring them to China, in bid to reduce costs and business complexity and to be more competitive in their industry.

• Pacific Brands has been experiencing financial hardship so these reductions were, arguably, a necessity to keep the organisation afloat. • The restructuring plan (mainly divestment) is a three year program. The case does not detail what the plan is post the three year program but it seems vertical integration might be a good option once the core capabilities are under control again.

Page 9 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Module 5: Developing the strategy

Developing the Strategy & Options Analysis • Strategic Options – The strategic option being implemented at the moment is one of reduction as opposed to growth. This option was a necessity for Pacific Brands because their manufacturing costs were significantly higher than their competitors’ because they hadn’t yet offshored all of their manufacturing. It was also a necessity because they were carrying so many unprofitable brands and their business was too complex preventing them from being able to focus on their key performing brands. PacBrands chose to consolidate their products (brands) in order to focus more strongly on their capabilities (consumer goods and textiles) and core activities to increase their competitive advantage. The implementation of this option is also reducing the number of customer markets they are targeting down to four. They are still operating in the same geographical market and using the same channels. There is a hint of introducing another channel, the Sheridan store, which implies some level of forward integration. Operational Levers – The cost operational lever is being pulled. The option being implemented has a key objective of reducing costs. People and organisational levers – The structure and capability levers are being pulled. The company is heavily restructuring to reduce complexity and offshoring manufacturing to cut costs. The core capabilities are being focused on more heavily by reducing the number of products (brands) that the resources are applied to.

• •

Evaluating strategic themes (Rumelt’s evaluation – external consistency, internal consistency, feasibility, competitive advantage) Page 5.34 • External Consistency – Industry life cycle is in the mature-­‐decline phase so the restructuring strategy is consistent with this theme as it aims to reduce costs and complexities and make the business more efficient. The buyer power in the industry is high, with a key buyer (Kmart) opting to direct source from a different manufacturer. The strategic theme is consistent with this trend as it allows the business to focus more on their key brands, which will increase the chances of buyers sticking with them.

The retail market is currently polarized, meaning that consumers are either opting for luxury brands or the cheapest option. Pacific Brands’ theme is not consistent with this market condition because their products fit between these two extremes. The online trend in the retail industry provides some inconsistencies with this strategy but PacBrands may focus on the possibility of pursuing the channels option after they’ve completed their restructuring strategy, which was a higher priority at the time. Internal Consistency – The strategic theme of cost cutting and reducing complexities by focusing on key brands is consistent with their restructuring strategy. It allows PacBrands to improve their capabilities by focusing on the marketing of fewer brands and offshoring their manufacturing which wasn’t considered part of their core business. This theme has also allowed the company to reduce the risk of collapse by increasing margins. Shareholders have had their dividends reinstated; evidence that this strategic theme was able to deliver on some stakeholder requirements. If PacBrands did not implement this theme, their demise was almost certain. Feasibility – This theme is two thirds of the way through implementation and has so far been a success so it seems that it is feasible. An analyst however, believes it is detracting from the value of the organisation. PacBrands seems to have improved financially and is no longer at high risk of going into receivership. Competitive Advantage – This strategic theme will remove complexity from operations and reduce overall costs to produce the products. Given that there are fewer brands, the marketing budget won’t be spread so thinly arguably providing some competitive advantage. There is some reputational risk with this strategy as the association with Australian made goods will be lost, possibly removing some competitive advantage. This theme will however make an already strong group of brands cost less to produce and allow these cost reductions to be converted to price reductions possibly providing another competitive advantage. Evaluation Summary – the theme is somewhat externally consistent however the polarized market is providing incentive for buyers to stock their own low-­‐cost labels or seek more luxury product lines. Pacific Brands’ products don’t fall into the low-­‐cost or luxury categories so they may lose market share. The growing trend for consumers to shop online may mean that Pacific Brands misses out on sales that could have been achieved had they pursued growth through this channel.

The strategy is two thirds of the way implemented already, so it may be considered that the theme is feasible.

The theme is not only internally consistent, it is arguably imperative to keep PacBrands afloat. The competitive advantage that the implementation may provide isn’t strong but once the business is operating efficiently, PacBrands may be able to focus more strongly on increasing their competitive advantage.

•

•

•

•

Page 10 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Module 6: Strategy implementation

Kotter’s 8-­‐step process for leading successful change (Page 5.17) • The phase, in the table below, is the phase of transformational leadership (see Module 7) Phase Organisational Level 8 Steps of Change Morphet 1 1. Establish a sense of 1. Sue recognized the shortcomings of the existing strategy and • Creating the need to urgency communicated this to the Board. She is quoted as saying “when a revitalize company has to make change, it has to deal with that and make the 2. Create a guiding coalition change. It mustn’t delay”. By this, the fact that she convinced the • Establishing a powerful board to proceed, and her stakeholder focus, it can be assumed that group to achieve change Sue created a sense of urgency. 2. As well as convincing the board that the strategy was necessary, as part of the company’s rebuild, Sue employed a new senior management team to assist with the strategy implementation. It can be assumed that they were the guiding coalition. 2 3. Develop a vision and 3 Sue is a strong believer in one of the tenets of strong leadership – • Form and communicate a strategy having a clear vision of what success looks like. Although not stated new vision in the case, it is very likely, based on this belief, that Sue developed a 4. Communicating the vision. The strategy has also been developed; to restructure the • Empower others and change vision organisation to enable a brand focus and move away from a eliminate obstacles manufacturing focus.

5. Empowering broad-­‐based • Plan and achieve short-­‐ action 4 Although the communication means are not demonstrated in the term goals case, Sue has a stakeholder focus and is therefore very likely to be 6. Generate short-­‐term wins aware of the influence stakeholders have on strategy so it may be assumed that she communicated her vision with them. 5 The case states that the nature of the company’s diverse groups requires her to trust her operational managers to “get on with it”. This implies that she has empowered her managers to get the job done. 6 The plan is on track to deliver net cost savings of $150M in 2011. Debt is reducing, investors have had their dividends reinstated, margins have improved, EBITA increased 30.1%. These results have however, exposed the negative impacts of the external environment. It has also been suggested that the majority of cost savings have been made by cutting advertising and marketing. And sales in the cornerstone brand (Bonds) have fallen for the first time in memory. 3 7. Consolidating gains and 7. There isn’t anything in the case to support this yet but the • Consolidate and build on producing more change implementation is only 2/3 of the way through. improvements

8. Anchor new approaches in 8. There isn’t anything in the case to support this yet but the • Institutionalize change the culture implementation is only 2/3 of the way through.

Why change is hard (Page 6.21) • Resistance to change – The decision to offshore all manufacturing and significantly reduce the number of brands is likely to have been met with a lot of resistance, particularly from employees. The resistance is often caused by fear of the unknown (reducing brands may have created a fear of future job losses and feelings of insecurity), loss of control (e.g. those working on the culled brands would have felt that they no longer were in control of their future). Stages of Grief -­‐ the employees may have gone through stages of grief-­‐ Denial-­‐Anger-­‐Bargaining-­‐Depression-­‐Exploration-­‐and Commitment which may have resulted in less engagement from them, lower production, an increase in errors and lower morale. Obstacles to strategy implementation (Hrebiniak) -­‐ poor communication and lack of commitment, inability to manage change effectively and poor or vague strategy are all major impediments to the implementation of strategy. Overcoming the resistance to change is also a major deterrent to successful implementation. PacBrands CEO may have benefited from improving their external communication with the likes of the media. This may have alleviated some of the stresses that the employees had been feeling around fear of the unknown and job insecurity. If the external communication was more prevalent, it may have made any internal communications that were made, more believable and legitimate in the eyes of the employees.

• •

The 3 C’s of strategy implementation (Communication, Commitment, Coordination) (Page 6.38) • • • Communication – The case does not detail the communication means that were used by Morphet and the board to inform stakeholders of their intentions. It may be argued that she did not communicate externally effectively as she avoided the media. Commitment – The case does not detail the level of commitment displayed by employees. Morphet has been described as being very committed to the strategy. Coordination – for strategy implementation to be successful, it is imperative for there to be an alignment (or coordination) between the strategy and the organisation’s functional units, processes and systems. Again, there is not enough information within the case to say if this was present.

Page 11 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Managing the politics of strategy implementation (Page 6.41) • Because of the controversy surrounding the restructuring strategy, in particular the offshoring of manufacturing and the significant reduction in the brand portfolio, the political environment within the organisation may have been tough. Different internal stakeholders would have had differing, and sometimes conflicting, interests. For example, offshoring manufacturing was necessary for the organisations sustainability in an increasingly competitive environment. The decision to offshore would have been aligned to certain individuals interests because it would have shored up their jobs for the long-­‐term, however, those that were made redundant were likely to have felt disillusioned and unfairly treated. Because the change was so extensive, the internal rivalry would have needed to be managed very carefully. Managers would have needed to be sensitive to the power structure and political dynamics inherent in the organisation, trying to get the buy-­‐in of those unofficial leaders within the organisation so as to minimize the amount of resistance to the massive change.

Page 12 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Module 7: Leadership and decision-­‐making

Leadership and Ethics (Page 7.6 & 7.7) Profit/Social Continuum – what is Pacific Brands’ position on this continuum? • Removed their Australian manufacturing operations (shifted to China) which was perceived negatively in terms of corporate social responsibility as it required the closure of 10 local factories, cutting about 1800 jobs (1200 made redundant in manufacturing) predominantly in small country communities. • Her large salary has been questioned, could lead to ethical issues internally if employees don’t perceive their leader’s salary as being justified. Could very well be the case when she’s cutting so many jobs. Needs to focus strongly on communication to ensure employees understand her reasons. • Morphet seems to be strongly focused on profit at the expense of some social responsibility factors. However this seems a necessary stance to take in the current external and internal environment; given that the company was on the verge of collapse. • Leaders are very influential as role models for the behavior of employees, both for establishing and maintaining the ethical climate in their organisation. If Morphet’s behavior is seen as not socially responsible, this may negatively affect the culture of the organisation. Again, strong focus on communication and change management is necessary. Management v Leadership (Page 7.9) • Leadership -­‐ is the skill of motivating, guiding and empowering a team towards a socially responsible vision. Leaders inspire and influence people, they build confidence and enthusiasm, develop future leaders, promote culture, act as role models, they communicate by establishing networks and relationships. They are catalysts for change. Fundamental basis of leadership is to lead in a way to effect change in people, to allow them to follow you wherever you need them to go. It’s about influence and persuasion. Leadership does not always produce consistency but instead focuses on movement and change. • Management is about planning controlling, communicating, coordinating, making decisions and evaluating. Management is largely about the systems; planning, budgeting, organizing, staffing, problem-­‐solving. Effective management is “discipline, carrying it out” (Schempp 2001). Management aims to reduce chaos and create order in highly complex organisations. • The dual role of Leadership/Management is to balance the stability with change. It’s a very difficult task. • Sue Morphet -­‐ Leader, manager or both – Made decisions, convinced the board to follow her. Had a clear vision of what the success looks like. New team at the top. “Sue is determined, she inspires the people around her. You just look at the people she has recruited”. She was able to recruit a very high profile and experienced management team. She has tried to maintain some stability in keeping their key brands but has implemented a drastic change in dropping around 250 brands and moving manufacturing offshore (to cut costs). She makes the tough decisions but trusts her management team to “get on with it” while she concentrates on stakeholders. She is also quoted as saying “good brands belong to the people who use them, not the people who make them…”. These things imply that she has a focus on empowerment as well as keeping abreast of stakeholder requirements and managing their expectations to enable them to be motivated to follow her, rather than forced.

Five levels of leadership (Page 7.11) • A Level 5 Leader displays the qualities of personal humility and deep professional dedication. They set up the company for enduring success (which differentiates them from the other levels of leadership). Often quite shy, quiet and give the impression of being timid while maintaining a fierce resolve, being courageous and disciplined. They suppress their own personal needs to focus on something larger and more lasting. Able to accept both praise and blame, to listen and to receive honest and constructive advice, and able to control their egos. Mirror and Window concept – level 5 leaders will look inwards (in the mirror) when performance is poor and accept responsibility, and will look outwards (outside the window) to attribute positive results to others and external influences (another differentiator between L5 and lower levels). • Sue Morphet -­‐ Level 5 Leader – Dedicated to implementing the restructuring strategy, shying away from interviews, not boosting her ego by bragging about her choices and successes. She made courageous decisions in the face of adversity to assure the company’s future “changes were designed to provide flexibility to deal with changing markets… remove complexity within our operations and have a strong market focus… ensure they have absolute long-­‐term opportunity”.

She closed down local manufacturing and dropped a number of brands (brands went from 350 to less than 100). She made the decision that needed to be made, when others before her had avoided it and she spent the time gaining the support of the board, without losing her resolve “there was no turning back”. She also understands that her focus is on stakeholders, gaining their buy-­‐in while the day-­‐to-­‐ day management is left to her trusted team. She did not blame her predecessors for debt levels and the almost going into receivership (Mirror and Window concept). By employing the capable team at the top, she has also created a sustainable future for the organisation and a possible successor for her role.

Page 13 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Transformational Leadership (Page 7.14) • Transformational Leadership – where a company needs only minor strategic adjustments, the leadership style is more likely to be Transactional, where a major overhaul is required, a transformational leader is required (transformational leadership continuum). Transformational leaders role is to creatively build and remake the organisation (change the mind-­‐set, beliefs, values or culture of the organisation). Three Phases: 1. Need for change is identified (through strategic thinking or through detailed analysis of environments (M2&M3)) and communicated. 2. Transformational leader provides an alternative vision for the future (idealistic yet based in reality so as to encourage people to commit to implementation) 3. Embed the change through strategy implementation. Make it permanent. Requires constant reinforcement of vision. One of the major reasons for failure of change management. Creative Destruction – intentional destruction of past processes and behaviors to then recreate and implement the future and desired state. Remove obstacles that present a barrier to successful implementation (relates to Kotter’s 8 steps and reasons for implementation failure). Impact on individuals – can be disillusioned. Transformational leader must be able to influence organisation and its employees to change, rather than attempting to drive the change coercively (relates to Kotter’s 8 steps and reasons for implementation failure). Sue Morphet -­‐ Transformational Leader – A complete overhaul of the operations and focus was required. Sue has not only created the vision for this, she has also communicated it and is well into the implementation phase. She has refused interviews however which could indicate a weakness in her communication. Creative destruction: closing down 10 local factories and cutting 1800 jobs, shifting production to China. There is insufficient information to determine whether she has successfully convinced the employees that her vision is a good one worth committing to.

• • •

Impact of Transformational Leadership (3 Phases & Kotter’s 8 Steps of Change) (Page 7.17) Phase 1 Organisational Level • Creating the need to revitalize • Establishing a powerful group to achieve change 8 Steps of Change 1. 2. Create a guiding coalition Establish a sense of urgency 1.

Morphet Sue recognized the shortcomings of the existing strategy and communicated this to the Board. She is quoted as saying “when a company has to make change, it has to deal with that and make the change. It mustn’t delay”. By this, the fact that she convinced the board to proceed, and her stakeholder focus, it can be assumed that Sue created a sense of urgency. As well as convincing the board that the strategy was necessary, as part of the company’s rebuild, Sue employed a new senior management team to assist with the strategy implementation. It can be assumed that they were the guiding coalition. Sue is a strong believer in one of the tenets of strong leadership – having a clear vision of what success looks like. Although not stated in the case, it is very likely, based on this belief, that Sue developed a vision. The strategy has also been developed; to restructure the organisation to enable a brand focus and move away from a manufacturing focus.

Although the communication means are not demonstrated in the case, Sue has a stakeholder focus and is therefore very likely to be aware of the influence stakeholders have on strategy so it may be assumed that she communicated her vision with them. The case states that the nature of the company’s diverse groups requires her to trust her operational managers to “get on with it”. This implies that she has empowered her managers to get the job done. The plan is on track to deliver net cost savings of $150M in 2011. Debt is reducing, investors have had their dividends reinstated, margins have improved, EBITA increased 30.1%. These results have however, exposed the negative impacts of the external environment. It has also been suggested that the majority of cost savings have been made by cutting advertising and marketing. And sales in the cornerstone brand (Bonds) have fallen for the first time in memory. There isn’t anything in the case to support this yet but the implementation is only 2/3 of the way through. There isn’t anything in the case to support this yet but the implementation is only 2/3 of the way through.

2.

2

• Form and communicate a new vision • Empower others and eliminate obstacles • Plan and achieve short-­‐ term goals

3. 4. 5. 6.

Develop a vision and strategy Communicating the change vision Empowering broad-­‐ based action Generate short-­‐term wins

3.

4.

5.

6.

3

• Consolidate and build on improvements • Institutionalize change

7. 8.

Consolidating gains and 7. producing more change Anchor new approaches in the culture 8.

Page 14 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

Strategic Leadership (Page 7.18) • • • Strategic Leadership – Process that establishes a direction and then motivates, inspires and aligns people to move towards that direction. Strategic thinking requires the questioning of current wisdom and initiating creative destruction. Sue Morphet – Strategic Leadership – Not enough information within the case to address this.

4 Leadership Styles (continuum) (Page 7.22) Directing (authoritarian – specific instruction and close supervision); Coaching (same as directing but including clear explanations of what is occurring as well as accepting suggestions from employees); Supporting (facilitates the employees efforts and shares the decision-­‐making); Delegating (transferring responsibility for both decision-­‐making and problem-­‐solving to employees). The most appropriate style should be chosen for the situation. Sue Morphet -­‐ 4 Leadership Styles – Difficult to determine which of these styles she portrays but she may have used a more authoritarian style to begin with and as people “got on board”, she may have started to use a more collaborative style.

•

4 Leadership Styles and the Organisational Lifecycle (Page 7.23) • Using different leadership styles in different phases of the life cycle. Risktakers (often the founder of an organisation, matches well with start-­‐up and growth phases); Caretakers (move from growth into maturity); Surgeon (ensure future success or fight against current problems. Have an ability to prune or sever parts of the organisation which have become a hindrance. Requires the ability to sever or destroy parts of the organisation that were once valuable, but which are now causing harm); Undertakers (organisation has approached end of its life, time to harvest or salvage what is viable and put the rest down. This style is required to prevent the prolongation of losses). Sue Morphet -­‐ 4 Strategic Leadership Styles and the Organisational Life Cycle – Sue was very much a “Surgeon”. Removing those parts of the business that were not competitive and were not profitably. The organisation is likely to be nearing the shake-­‐out phase, possibly declining and Sue’s strategy is about turning that around and potentially renewing the organisation to an extent.

•

Balancing stability (management) and change (leadership) (Page 7.24) • Management involves planning, controlling, decision-­‐making, discipline, coordinating and communicating in order to reduce chaos in highly complex organisations. Leadership on the other hand requires the ability to influence, inspire and persuade people to support the implementation of required changes. Sue Morphet – balancing stability and change -­‐ has successfully balanced these two elements in many ways. She has changed the focus of the organisation from that of manufacturing to brand marketing. She has maintained their key brands but sold off a large number of brands to enable a stronger focus on a smaller “product line”, as well as offshoring the manufacturing. These changes have been made to remove complexity from the organisation. She has also implemented staff changes by recruiting a new senior management team and then trusts them to “get on with it, while she focuses on stakeholders”. Although Sue managed to gain board approval and support, there is no indication of how successful she was (or has been) in persuading the lower level employees that her strategy was sound and enduring, however her stakeholder focus implies that she understands their ability to influence strategy and is concentrating on getting their buy-­‐in. A major shareholder decided to invest around the time of the strategic change, this in itself shows that she managed to inspire some people to follow her. The chairman is also quoted as saying “she inspires the people around her”.

•

Decision Making (Page 7.26) • Rational decisions – Sue Morphet and the board’s decision to implement the restructuring strategy may be seen as a rational decision. The decision was a conscious, explicit and deliberate decision. It was internally consistent (see Rumelt’s evaluation), the board were fully informed of Morphet’s idea’s as evidenced by the fact that it took her a while to convince the board. The decision to restructure is aimed at the end goal of avoiding receivership, removing complexity and reducing the brand portfolio to enable greater focus on key brands. It appears the rational approach to strategy development has been followed. See page 7.27 for more information.

•

Decision-­‐making in practice (Page 7.28) Gleeson’s ‘four ways that leaders can make decisions’ • Gleeson suggests that there are four key ways that leaders can make decisions: • Command – decisions are made without consultation from their team. Usually needs to happen in times of crises when there is no time for consultation. • Collaborative – decisions are made collaboratively with the team. Leader can consider perspectives and make informed decisions. This is considered the most effective way to make decisions, if time permits the process of consultation. • Consensus – majority rules style of leadership. Every team member has a voice. Often not possible in fast-­‐paced business environments. • Convenience – delegation of decision-­‐making by the leader to a trusted team member. • Sue Morphet – Four ways to make decisions -­‐ Morphet appears to have displayed the collaborative approach in her decision-­‐making. The case states that it took her some time to convince the board, which implies that she consulted with them before making the final decision. However, there is no information about whether she consulted with lower level managers or staff which, if it did not occur, could have been perceived as a command style of leadership by lower levels employees. With board backing, the new vision and strategy could very well have been effectively communicated and accepted and a collaborative approach may have been taken.

Page 15 of 23

Melissa Roberts 9610377

Pacific Brands

Global Strategy & Leadership S2 2013

The role of leaders in setting direction (Page 7.33) Visionary Leadership • 4 key roles – setting the right direction, acting as change agent, communicating as spokesperson, coaching others along the way 1. Setting the right direction-­‐ Morphet realized, not long into her tenure as CEO, that drastic changes were necessary for the organisation’s survival. She communicated her views immediately and, with tenacity, managed to convince them that her view was the right view and that these drastic changes were necessary. 2. Acting as change agent-­‐ Morphet ensured that the changes were implemented swiftly. She employed a senior management team to oversee the restructure while she dealt with stakeholders, assumedly to ensure that they were on board with the changes. 3. Communicating as Spokesperson-­‐ The case does not provide sufficient information around her effectiveness at communicating internally. It does however say that she avoided interviews and the limelight. This could be construed as ineffectively communicating. 4. Coaching others along the way.-­‐ There is not enough information within the case to determine if she did this. The chairman is quoted as saying she inspired others but there is nothing about coaching. • Based on the case facts, it is not possible to determine if Morphet was a visionary leader.

7-­‐S Model (The role of leaders in strategy formulation and selection) (Page 7.34) • Will the proposed strategy will achieve its aims i.e. does the strategy align with the 7-­‐Ss? • The aim of the restructuring strategy of PacBrands is to refocus the business on brands and move away from manufacturing in order to improve the financial situation and keep the organisation afloat. It requires a major restructuring including cost-­‐cutting; reorganizing capital management and debt financing, simplifying logistics and operations, sourcing production offshore and developing capabilities required as a brand marketer. • Strategy – the plan is devised to maintain and build competitive advantage over competitors. Yes, this strategy is to lower costs so that the organisation can remain more competitive. It is also focused on reducing the number of products (brands) so that they can focus more closely on those few and therefore become more competitive. It is also designed to provide flexibility to deal with changing markets; i.e. remain competitive. Offshoring production aligns with the cost cutting component of the strategy • Structure – the current methods for organizing people to do their work, in terms of roles, responsibilities and hierarchy. One of the main goals of the strategy was to cut the costs in order to remain competitive. The strategy therefore included the plan to cut 1800 jobs and offshore the manufacturing. The required resources were available offshore to support this new structure. A new senior management team was recruited to support the new strategy. Based on these facts, the strategy seems to be in alignment with this element. • Systems – current method of collecting data and disseminating information. There is not sufficient information to determine alignment here. Although it can be assumed that the systems required for offshoring manufacturing were available offshore. • Resources (Staff) – the people, but also now captures the organisational resources. Jobs were cut to implement this strategy, which is a misalignment with the resource component. It is likely that this also left he remaining employees feeling somewhat disillusioned and nervous about job security. • Skills – the abilities required to successfully operate. A new senior management team was recruited to oversee the remaining operations. The skills required for manufacturing were available offshore. The quality of the product may now come into question with the manufacturing being undertaken in China as opposed to Australia; the new focus on a reduced number of brands could lead to the perception that the quality of these brands should be better. The offshoring could therefore represent a misalignment of skills to the current strategy. • Style – the type of leadership exhibited and the level of empowerment. The difficult decisions made to restructure the organisation, in particular the decision to send manufacturing offshore, seem to be in alignment with Morphet’s style of leadership. She is able to make the tough decisions that are necessary for organisational survival and stick to her guns. • Shared values – those stated and more importantly practiced by an organisation. The values of the organisation are not stated in the case however, the company is known as a local company with strong “Aussie branding”. The strategy to offshore and drop a number of these Aussie brands does not align with the aussie themed value.

Page 16 of 23

Melissa Roberts 9610377 Item 22% 1893 2004 2009 2009 2009 2011 2011 Mar-­‐11 $100M; Market Capitalisation $150M Net Cost Savings $175M Write-­‐down 10 Local Factories closed 100; less than brands 1200 jobs redundant 1800 Jobs cut 350 Brands 8000 Staff 900 Labels ACCC Adverse Reactions Advertising and Marketing; cost cutting Analysts Ansoff; Market Development Ansoff; Market Development Ansoff; Product Development ASX Listed Attitude Aussie Branding Australia; Operations Australian Manufacturer; Only Remaining Bankers; stiff attentions Bargain Beds and Foam business Belong Benefits Berlei Blame; didn't blame others Blue-­‐collar companies Board; convince Bonds Bonds; replaced by Kmart Bonds; Sales fell Brand Marketer Brands leaving shore Brands; 350 Notes

Pacific Brands

Global Strategy & Leadership S2 2013 Para 16 2 13 2 9 21 3 19 3 6 19 16 4 17 4 4 6 6 6 15 11 21 21 10 15 14 1 5 12 1 7 6 18 15 12 17 15 13 11 8 15 18 21 5 11 6

Workwear and Homewear Began manufacturing bicycle typres Decision to list Decided to refocs on brands and move away from manuf Integrity Asset Management bought into the company Analyst note to clients Article date Net Cost Savings

in manufacturing

Strong market focus

Uncaring

good brands belong to those who use them, not those who make them Dozen key brands

making significant shift offshore

market devastated

Page 17 of 23

Melissa Roberts 9610377 Item Brands; Dozen Key Brands; Key Brands; less than 100 Brands; New Brands; Streamlining Brands; that were kept and discarded Brands; that will succeed BSC; Customer BSC; Financial Business Community Business drivers Capabilities Capital management; reorganising Cessnock Chairman; James MacKenzie Changing markets Charged political environment China; shifted production to Chinese Labour; Rising Costs Clarks Shoes Closing factories Clothing and Textile Manufacturer Collapse Commercial Stability Complex Complex Business Complexity Complexity; Remove Consumer goods and textile Consumers; Luxury Brand Convince the board Coolaroo Core competency Cornerstone Brands; Sales Corporate History Cost Cutting; Advertising and Marketing Cost more than all competitors Cost Savings; cuts in advertising and marketing Cost-­‐cutting Cost; a lot of money Cost; Restructuring Plan Costs; Rising for inputs Cotton; Rising Costs Criticised Personally Criticism; Fierce Cut 1800 jobs Notes

flawed strategy

Pacific Brands

Global Strategy & Leadership S2 2013 Para 17 17 17 15 15 15 17 4 6; 16; 18; 19; 20 12 17 5; 15 5 7 8; 24 10 7 4 20 15 4 4 6 11 15 6 10 17 15 18 8 7 14 21 6 21 9 21 5 14 19 20 20 5; 13 13 4

in the future are number one in their category

Dozen key brands Brand Marketer

Changes were designed to provide flexibility to deal with

teetering on the edge of

far too for the business capabilities

remove

Focused on

flawed strategy of growth through new brands

Page 18 of 23

Melissa Roberts 9610377 Item CVC David Jones Debt $800M Debt levels Debt refinancing Debt; Reducing Decision that should have been taken years ago Delay; mustn't Department Stores; Sales Design Abilities; local Desting; in control? Diverse Groups Divestment; Beds and Foam Dividends Doing what no one else would do Dozen Key brands Dunlop Bicycle Tyres Dunlop Foams Earnings EBIT Emblematic of major structural upheaval Empowerment Excited about pacific brands Failure; inevitable Fiani; Paul Fierce criticism Financial Crisis First mainstream blue-­‐collar company First-­‐half earnings Flawed approach Flexibility to deal with changing markets Focus; distracted management Focus; on key brands Folly Footwear, Outerwear and Sports Foster's Group Four Segments Freight; Rising Costs Get on and do the job Get on with it while she manages stakeholders GFC; Kmart reaction Globalisation; impact of Good Brands belong Goods cost more than competitors Growth Notes

boosted

Pacific Brands

Global Strategy & Leadership S2 2013 Para 13 23 6 13 5; 6 20 8 22 18 15 21 23 15 20 9 17 2 15 16 20 7 22 22 9 9; 14 13 6 11 20 14 10 14 17 15 16 23 16 20 22 23 18 7 12 9 3

More than half from Underwear and Hoisery segment

to make significant shift offshore

changes were designed to provide

to the people who use them

Sue decided to transform company to generate growth

Page 19 of 23

Melissa Roberts 9610377 Item Growth via new brands Guns; stuck to them Guts to make decision Hard Yakka Headquarters Helm Homewear Indonesia; Operations Industrial Company Inspires Integrity Asset Management Interview requests Investors; patient Issues; faced in recent years Job Cuts KingGee Kmart Labels; 900 Leadership Lee Jeans Legacy Let them down Limelight List the company Local Company Local Design Abilities Local Manufacturing; Subsidise Logistics and Operations Long-­‐term opportunity Loss; $166M Luxury Brand MacKenzie Main focus Major Shareholder Make the change Malaysia; Operations Manufacturer; Only Remaining in Australia Manufacturers Manufacturing Sector Manufacturing; Subsidising Local Margins; Improved Market Capitalisation Market devastated Market Focus Market hurdles to climb Market Polarised Market tough Market unsure Notes

Melbourne

we are not

Stakeholders

Pacific Brands

Global Strategy & Leadership S2 2013 Para 14 8 8 15 1 13 16 1 15 24 9; 14 5 20 14 4 15 18 6 23 15 6 12 5 13 12 15 10 5 17 20 18 8 14 9 22 1 7 14 7 10 20 6 11 10 22 17 17 11

with strong Aussie Branding boosted

remove complexity

Integrity Asset Management bought into the company

issues shared among

brands were leaving shore Strong

of what was ahead Page 20 of 23

Melissa Roberts 9610377 Item Market; Concerns Merrill Lynch Mundane Goods Neglecting minor brands Net Cost Savings $150M New Brands New Talent New Zealand; Operations No Turning Back Number one in their category Nunawading Offshore production Offshoring for years On Track One in their category Operational Managers; Trust Operations Origins Paul Fiani Plan; Restructuring Polarised market Predecessors Price Point Offer Priority Private Equity Beginnings Private Equity Investors Private Equity Ownership Product Focus Production offshore Production; shifted to China Program; Restructuring Reaping plenty of dollars Rebuilding the brand Receivership Recruited Reducing its debt Redundancies Redundant Industry Refinancing Restructuring strategy Retail Environment Retail Environment; Fickle Retail Strategy Revenue Rio Rising costs; cotton, labour, freight Salary; Morphet's Sales Sales; department stores Notes Analyst

Pacific Brands

Global Strategy & Leadership S2 2013 Para 21 21 18 21 19 14 14 1 13 17 7 5; 7 7 19 17 23 1 2 9; 14 19 17 13 18 5 14 13 6 14 5; 7 4 19 13 3 13 24 20 4 7 5; 6 5; 19 18 20 15 16 15 20 5 16 18

Growth through; flawed strategy

But only remaining Australian manufacturer

Australia, New Zealand, UK, Malaysia, Indonesia Manufacturing Dunlop Bicycle Tyres

implementing three year restructuring strategy

article title

More than half from Underwear and Hoisery segment

Third to underwear and hoisery

Page 21 of 23

Melissa Roberts 9610377 Item Sales; fell Sales; Weak Segments Sell-­‐off; criticised Shareholder; major Sheridan Brand Shoppers; buying habits Shy; did not shy from decision Significant shift offshore Singlets Sleepmaker Staff; 8000 Stakeholders; Analysts Stakeholders; Bankers Stakeholders; Board Stakeholders; Business Community Stakeholders; Community Stakeholders; Concentrate on Stakeholders; Customers Stakeholders; Employees Stakeholders; Shareholders Stakeholders; Shareholders Standing Firm Stores; its own Strategy Strong Base Strong brands Stuck to her Guns Subsidise local manufacturing T-­‐shirts Talent; New Team at the top Telstra Tenets of strong Leadership Tested her; morphet Third of Sales Three years running PB Three-­‐year restructuring program Tontine Tough Market Tough Trading Conditions Trade-­‐off Transform Transformation Plan; destroying value Troubled Business Trust Operational Managers Trust; Ops Managers Notes

Pacific Brands

Global Strategy & Leadership S2 2013 Para 20 20 16 21 9 15 18 13 11 7 15 6 21 6 8; 24 12 7 23 4; 5; 6; 12 2; 4; 5; 23 6; 9; 13; 14; 20; 21 9; 14 13 15 14 22 11 8 10 7 14 14; 23 23 23 13 16 4 19 15 17 20 22 3 21 16 23 23

Integrity Asset Management bought into the company Retail Strategy

first

or competitors

Integrity Asset Management

Retail Strategy flawed

the company to generate growth

Footwear, Outerwear and Sports

Page 22 of 23

Melissa Roberts 9610377 Item Turnaround Turning Back; No Two-­‐thirds of the way through UK; Operations Unanderra Uncaring Attitude Underwear Underwear and Hosiery Underwear and Hosiery; Manager Unfair; Morphet given hard time Urgency Vertical Integration Vision Vitriol Weak Sales Workwear Wrangler Write-­‐down Write-­‐downs Yakka Notes

Retail Strategy

criticism

$175M

Pacific Brands

Global Strategy & Leadership S2 2013 Para 14 13 19 1 7 5 7 16 23 9 6 15 23 5 20 16 15 16 20 15

Page 23 of 23