Saturday, August 04, 2007

Kalamazoo Dog House Story (Part 3)

Continuing our riveting story where we left off, let's explore the (truly fascinating) dog house industry, and how three competitors decide on the organizational split between projects vs. ongoing operations. Ultimately, these decisions will have a profound impact on front-line action.
PetKorp Industries, the long-time market leader in pet product manufacturing started to experience a sharp drop in the dog house market share in the late 1990's. Like so many other segments of the economy, the dog house market began to shift from mass market retail sales to a built-to-order "direct model" via the web. The primary challenge came from Doghaus.biz. Michael Haus is the self-declared "Dell of Dog Houses." His built-to-order strategy worked, and Doghaus.biz quickly gained significant market share.

The CEO of PetKorp, in an attempt to reverse the sharp drop in its market share (and stock price), countered Doghaus.biz with its own line of built-to-order dog houses. Although the PetKorp brand name was still very strong, establishing a direct-order business unit was a major undertaking. PetKorp launched a project to create an entirely new business unit, called PetKorpOnline whose goal was to compete directly with Doghaus.biz.

When retail outlets who carried the PetKorp line of dog houses learned about PetKorp's direct market strategy, they were irate that PetKorp was attempting to cut them out. Fearing a further drop in stock value, the PetKorp CEO told retailers that the retail line would continue unchanged. If an on-line customer ordered custom options that constituted a construction effort (e.g., building permits and city inspections) PetKorp's new business unit would deliver and install the product, with the help of local contractors. If the on-line customer ordered a classic dog house (no options), the order would be routed through their traditional business unit to the nearest retail store, who would then deliver the dog house and set it up. Retailers reluctantly agreed because they had no experience with custom construction projects.

After PetKorp successfully completed its project to create a direct-order business unit, the new business unit was transitioned to ongoing operations as was typical for this traditional company.
See the comments section for analysis and a preview of Part 4.


posted by Garry B @ 8:52 AM, Read More...  
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1 Comments:

At 9:50 PM, Blogger Garry B said...

To PetKorp a "project" is an endeavor to create something truly unique, like creating the PetKorpOnline business unit. As one PMThink reader commented, custom doghouses might be considered "business as usual" projects but PetKorp doesn't see it that way. PetKorp thinks that delivering a doghouse, no matter how customized, doesn't demand PM skills, knowledge and tools, especially since the customization work is performed by firm-fixed-price (FFP) subcontractors, who are pre-selected. If a FFP subcontractor wants to apply PM knowledge, skills and tools, PetKorp considers it the subcontractor's decision.

One thing to keep in mind, as our story moves forward, is the level of internal competition that this company has created. PetKorp now has two different business units that sell similar dog houses. One is a traditional wholesale business unit and the other is the new build-to-order business unit. Back in Kalamazoo, this internal split will drive very different actions when setting up a custom dog house in Alice's yard and a standard dog house in Betty's yard. Betty's dog house, with none of the dog house options, will be set up by low-bid contractor to a well-known retail outlet around the corner. Alice's dog house, with several dog house options, will be installed and built by a different subcontractor -- one with construction experience.

Both Alice and Betty had expected PetKorp to do the installations, but they were surprised (shocked!) by the near fist-fight between competing no-name subcontractors. This unfortunate customer experience, quickly told and embellished throughout the neighborhood, was caused originally by PetKorp's decision to manage this market space with internal competition -- a form of "management by org chart."

In Part 4, we will explore the project vs. operations mindset of PetKorp's on-line competitor Doghaus.biz. This formidable competitor uses project management for "business as usual" custom dog-house projects. We'll see what difference this approach makes in Kalamazoo.

 

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