Gillette Case

Problem Identification

How should Gillette proceed with its unsuccessful acquisition of Duracell; should it divest Duracell or keep it?

Pertinent Issues

* Should Gillette sell of Duracell at a loss publicly acknowledging its acquisition of Duracell was a poor decision?

* Should Gillette keep Duracell, and if so, how should it deal with Duracell's major decline in revenues, operating margins and Gillette's decline in its stock price as a result?

Company and Market Analysis

INTERNAL ANALYSIS

VRINE

Valuable

* The financial resources and size of the company with worldwide reach can be leveraged as an advantage to provide value to customers in terms of availability, quality and variety of products such as batteries through Duracell.

* The Gillette Company is known for its solid relationships with vendors around the world, especially drug stores and retailers, its capability of a reputable brand name provides its value for the company and customers through its distribution network.

* Through many years of operation, Gillette is able to pass on its experience and capabilities to Duracell in order to add value.

Rare

* The financial resources of Gillette and Duracell are rare in that they are a global company and very few other companies have comparable resources/capital.

* Having a good working relationship with vendors is rare which complements their channels of distribution.

* Experience as a capability is rare to a company, which can include best operational practices and skills that provide a competitive operational advantage.

* In terms of Duracell, the development and sales of batteries is not a unique or rare product and there are several competitors within this market.

Imitable / Substitutable

* The size, resources, and capital behind Gillette are hard to beat; however, they do have a few major competitors, especially competitors of Duracell. Companies can copy Gillette through higher margins and their global reach can be expanded by acquiring other companies, quality of products can also be copied or improved upon.

* The distribution network is not fully protected from being copied, or it can be improved upon the current process that Gillette/Duracell uses, but it will cost money and time.

* Duracell is in constant competition to improve its battery technology to keep up with and exceed its competitors, particularly Energizer and Rayovac.

Exploitable

* The financial resources and company size is able to be exploited to make a profit.

* The relationships that Gillette possess can be leveraged to create the value of profit.

* The operational experience can be used as a company capability to help create value.

* In terms of Duracell, it is only exploitable through constant technological improvement and large advertising campaigns. Without this constant progress and aggressive advertising, Duracell would be consumed by its competitors.

Value Chain

Primary Activities

Inbound Logistics - Gillette receives materials from its various suppliers around the world. These inventories are then processed and organized according to their specific product line. Although there is little information provided on inbound logistics; however, it is reasonable to assume that a global company as large as Gillette would have multiple warehouses strategically placed around the world.

Operations - There are four main product lines that end products are classified under. These include personal grooming, small appliances, oral care, and portable power products. Once the products are manufactured they are shipped through Gillette's worldwide distribution network.

Outbound Logistics - Gillette ships its final products through a worldwide distribution network. The primary markets for these products are typically drugs stores and various retail outlets.

Marketing and Sales - The job of marketing and sales has been outsourced to BBDO advertising agency. This allows for Gillette to focus on increasing the value of products and gaining competitive advantage. Some recent marketing strategies include the Duracell divisions launching of the Duracell Ultra battery and it's "more power, more life" campaign. Furthermore, the strategy of product placement in retail stores has been valuable in battery sales since the majority of them are considered to be impulse purchases.

Service - Gillette has introduced many innovations over its long history to help create more value to consumers. Most of the goods sold are considered personal care products that are marketed toward both men and women.

Support Activities

Procurement - Gillette operates globally and receives raw materials and other components form various suppliers. However, the case does not go into detail about where it specifically receives its raw materials and equipment from.

Technology Development - A lot of the success of Gillette can be attributed to its ability to continually introduce new product innovations that help create competitive advantage over competitors. For example, over the years Gillette has introduced pivoting head technology, multiple blades, electric razors, longer lasting batteries etc.

Human Resources Management - Gillette has expanded operations through the acquisition of other companies in complimentary industries. With the acquisition of Duracell, the company offered senior managers positions within Gillette and gave generous compensation packages to employees that had to be laid-off.

Company Infrastructure - Gillette has a vast information technology system that allows for management to track global operations. It is utilizing such systems to determine root causes of the decrease in profitability since the acquisition of Duracell.

Financial Analysis (DuPont, other Financials - See Appendix A & B)

The DuPont Analysis conducted on Gillette for the year 2000 showed a very low Return on Assets (ROA) of only 3.77%. This means that for $100 of assets Gillette has, it only sees a $3.77 return. In terms of