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MBA PROGRAMME

MASTER OF BUSINESS ADMINISTRATION

Graduate School of Business

Universiti Kebangsaan Malaysia

INDIVIDUAL ASSIGNMENT

CLASS: Strategic Management ZCZB6523

LECTURER: Prof. Dr Mohd Tusirin Bin Hj Mohd Nor

REVIEW OF CASE 3: ROOM & BOARD

(IN RELATION TO CHAPTER 13: ENTREPRENEURIAL IMPLICATIONS FOR

STRATEGY)

NO.NAME I.C. NO. STUDENT NO.

1. Mohd Hatta Ahmad 641225-05-5601 ZP00664

Date: 10.09.11

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CASE 3: ROOM & BOARD

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STRATEGIC ENTREPRENEURSHIP AND INNOVATION

Entrepreneurship is related to the discovery of profitable opportunities and the exploitation of that

opportunities. Entrepreneurial opportunities are conditions in which goods and services can satisfy

need in the market (Ireland, Hoskisson and Hitt, 2011).

Innovation is the specific function of entrepreneurship, whether in an existing business, a public

service institution, or a new venture started by a lone individual (Drucker, 1998) Innovation is the

primary objective sought by a firm embarking on entrepreneurialship and this was put forth by

Schumpter that a firm engage in 3 types of innovation activities (Schumpter). This proposal by

Schumpter is shown below: -

INTERNAL INNOVATION

Most innovation in established firms comes from the works done in research and development

(R&D). These innovation activities at R&D could be categorized either as incremental or radical

innovation. In the former, the markets are well defined and products characteristics are well known

and the profit margin tends to be lower but the risk is relatively low. Example of this is new cosmetic

changes made to a current car models. In the case of radical innovation, the market is untested, the

product could be considered as pioneer and the risk is immense. However the return could be huge

as in the case of iTunes and iPod for Apple Inc.

AUTONOMOUS STRATEGIC BEHAVIOUR AND INDUCED STRATEGIC BEHAVIOUR

In autonomous strategic behavior, the product champion pursue the concepts/ new ideas through

bottom-up process. The product champion would be a person with entrepreneurialship brilliance

that the drives the fruition of the idea.

Induced Strategic Behaviour is top-down process where the firm’s strategy and organization

structure inculcate the innovation processes. In order for innovation to work successfully, the

management of the firm should be the driver to push through innovation culture throughout the firm.

Invention Innovation Imitation

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EXECUTIVE SUMMARY

Room & Board was a successful and unique privately owned home-furnishings retailers based in

Minnesota with eight national retail stores, an annual catalog and a web site. Room & Board was

unique as it based its business not on the normal maximization of the creation of wealth to the

shareholders but on the basis valuing relationship between the stakeholders (from vendors right

down to the workers and customers) ahead of the bottom line. What made Room & Board special

was that the company produced exceptional financial results despite not subscribing to the

standard retail-industry business model. The owner of the company, John Gabbert adopted

relationship business model that disavowed debt and equity-growth financing and 25 years later he

was at the cross-road, being 60 years old he had to decide how to institutionalized his business

model in order to preserve the business.

HISTORY

John Gabbert succeeded the furniture business from his father at the age of 24 and by the age of

33 he left the business to start on his own furniture business based on Ikea’s business model.

However he was frustrated, feeling unfulfilled he took the bold step to revamp the business model

based on building business with people he liked and on a model that represented quality. Room & Board concentrated on quality home furnishing that created long lasting relationships with

customers, vendors and employees

ANALYSIS – EXTERNAL ENVIROMENT

1. Demographic – Started off in Minnesota which is in the Mid-West of North America, an area

well known for patriotism. Room & Board’s products of heritage American sells well.

2. Economic – Competition from other retail furniture stores that sell affordable products

produced using mass manufacturing process or imported from developing countries. Room

& Board cater to the customers who appreciate quality products and willing to pay for them

as these products will serve many years to come

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3. Technological and Design – R & D especially in new furniture design. Also challenges in

keeping with the in-trend and fashionable design which are not really a threat to Room &

Board as it styling is related to heritage American.

4. Competitors – Similar concept stores e.g. Design Within Reach and Crate and Barrell and

other mass-produced furniture retail stores

INDUSTRY ENVIRONMENT ANALYSIS

Board & Room’s industry environment analysis is described below based on Porter’s 5 Forces : -

FORCES ANALYSIS

Threat of New Entrant Threat is LOW due to capital intensive (skilled carpenter and design)

Rivalry Among

Competing Firm

Rivalry is LOW due to small number of competitors.

Threat of Substitute

Products

Threat is HIGH as customers might be put off by the price of authentic

heritage American furniture and opt for faux heritage American

furniture due to economic pressure.

Bargaining Power of

Supplier

Bargaining power is LOW as Room & Board has built life-long

partnership with the vendors

Bargaining Power of

Customer

Bargaining power is LOW as the cutomers choose Room & Board not

on competitive pricing. Furthermore Room & Board has built the trust

in the customers with its pricing as it never hold any discount sales or

cheap sale.

INTERNAL ENVIRONMENTAL ANALYSIS

The internal environmental analysis done on Room & Board using SWOT analysis is shown

below: -

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STRENGTH

Good reputation in the market

Good support from the vendors

Solid quality reputation

Fast and timely delivery to customers

across America

WEAKNESSES

The interest of customers in heritage

American furniture might wane over

period of time

Cost pressure might cause Room &

Board to review its manufacturing

process

OPPORTUNITIES

Huge market: Expected growth

Supply to the big chain exclusive stores

e.g. Macy

THREATS

Other similar retail stores

Cheap furniture retail shops (when the

customers start to look for cheap

alternatives)

PERFORMANCE ANALYSIS

The performance of Room & Board sales shows increasing trend since 1995 except for slight dip in

2002: -

0

50

100

150

200

250

1 2 3 4 5 6 7 8 9 10 11 12 13

S a l e s

Years

Room & Board Sales

1995 to 2001

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1. John Gabbert has shown a successful strategic entrepreneurship where he applied a radical

innovation when he first started the business model – relationship based 25 years ago

2. From there on he continues with induced strategic behavior as he, being the owner and

CEO of the firm, advocate for the relationship based model throughout the stakeholeders

until it becomes the firm’s culture.

3. Gabbert continues with incremental innovation with his expansion plan is not aggressive

with only 8 stores opened over the 25 years period

NEW CORPORATE LEVEL STRATEGIES

The followings are possible mitigation measures to ensure the relationship model is preserved and

institutionalized at Room & Board while maintain a reasonable profit: -

Adoption of New Technology

Use of on-line ordering aggressively to increase sales and customer base

Use of Enterprise Resource Planning system (if not done yet) to manage the ordering,

delivery and inventory.

Identifying and Grooming Potential Successor

Identify and groom a potential replacement for himself either from his own family member or

someone from external and groom him to have the aptitude of innovative leader

Strenghtening The Workforce

Provide and implement plans to ensure life-long employment like stock option upon

retirement

Continuous training of the work force and regular job rotation in non-critical areas to keep

work force focused and motivated.

room & board 100911

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