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W L Gore Culture Of Innovation Case Solution
W.L. Gore & Associates, Inc. (referred to as Gore) is a company that operates in a different way than most companies, where no traditional organizational charts, no chains of command, no predetermined channels of communication exist. As the firm grows over time, will it be able to keep its current structure or needs to change in order to adapt to changing conditions in its environment?
There is no core business at Gore even though its products and services revolve around Teflon and Teflon related products. Employees who are called associates, have the freedom to pursue their own initiatives as long as they are able to convince and motivate their peers to take part in such projects. Bill Gore, the founder of the company wondered if such a company would be able to deliver consistent growth and profitability.
Following questions are answered in this case study solution
External Environment Analysis
Internal Environment Analysis
Business Level Strategy
Corporate Level Strategy
Acquisition and Restructuring Strategies
Organizational Structures and Controls
Case Analysis for W L Gore Culture Of Innovation
2. Company Background
Gore is a privately held company that has its headquarters in the suburbs of Newark, Delaware. It was founded in 1958 by Bill Gore and his wife, after Bill discovered that his former employer DuPont’s product Teflon could be used to produce a good ribbon cable. DuPont unwilling to enter the wire business, agreed to supply Teflon to Bill in his new business. Starting from producing wires in a basement, the company has grown into a company that provides products in fields ranging from fabrics, electronic devices, medical devices, consumer products, pharmaceuticals and polymer processing, located in 30 countries worldwide with more than 9500 employees. It has been 14 consecutive years for it to have been ranked among the “100 Best Companies to Work For” by the Fortune Magazine in 2011. The voluntary turnover rate at Gore was one-third that of the average in its industry, and one-fifth to that of private firms on similar size.
3. External Environment Analysis
i. General Environment
U.S.A.’s population as of 2012 had 313 million people, an increase of 0.7% from 2011 (United States Census Bureau, 2011). The GDP per capita growth rate in U.S.A was 1.2%, which was 0.5% lower than that in 2011 (The World Bank, 2018). Consumer Spending increased by 3.5% in 2012, as compared to 3.3% increase in 2011. Prices rose by 2.1% and average annual income increased by 2% (U.S. Bureau of Labor Statistics. 2014). Politically, elections are to be held in 2012 and if there is a change in government after the elections, changes in the way firms operate could be anticipated (LoGiurato & Wyler, 2012). There has been a growth in financial and non-violent, white collar crimes in the U.S.A. with about 217,608 arrests made for fraud from 2001 till 2011 (Cliff & Parker, 2017). These crimes can have ripple effects, damaging the firm and is a threat to firm such a Gore where a great deal of freedom is allowed to employees (Graham, 2012).
ii. Industry Environment
Gore operates in numerous industries ranging from fabrics, electronic devices, medical devices, consumer products, pharmaceuticals and polymer processing. These are all durable goods. Most of these industries have high barriers to entry as a result of the technology uses which requires R&D expenditure that results in high capital costs. For example in the medical goods industry R&D expenditure averaged around 6.7% of the revenue earned (Select USA, 2014). The supplier industry that provides Teflon is expected to decline from 2012 due to fall in prices of Teflon. This reduces the bargaining power of suppliers within the industry (IBIS World, 2017). Because of the fact that many of the durable goods are highly differentiated, buyers do not have much substitutes available when they need a particular type of good. Hence the bargaining power of buyers is low as well.
iii. Competitor Environment
Durable goods manufacturing is increasing by 9.1% in 2012 (Bureau of Economic Analysis, 2013). Due to high industry growth, the amount of competition is low as firms focus on acquiring new customers rather than the customers of other firms (Hitt, Ireland, & Hoskisson, 2006). Gore’s competitors include Medtronic Public Limited Company in the medical goods industry with revenues of $16 billion compared to Gore’s $3 billion (Medtronic, 2012). The amount of product differentiation is high within the industry. Gore, for example strives on innovation to produce unique and valuable products that give it a highly differentiated positioning in the market place. As a result of differentiation, the competition is low (Hitt, Ireland, & Hoskisson, 2006).
4. Internal Environment Analysis
Gore has held more than 2000 patents worldwide in 2011. Supplies the most technologically advanced portfolio of Membrane Electrode Assemblies for the fuel cell industry. It employs more than 9500 employees in more than 30 countries and has a low voluntary turnover rate.
Gore is capable of producing new innovative products as its employees pursue their own projects in their 10% extra allowed dabble time. These take initiatives and motivate others to take part in their projects. There are about 100 different projects in different stages of development at any given time at Gore.
iii. Core Competencies
Gore’s core competency lies in producing innovative products from its deep knowledge and mastery in Teflon. It produces highly differentiated, patented products that are a result of innovation and can’t be copies by competitors.
Whether the firm has sustainable competitive advantage or not?
Gore’s unique, innovative and differentiated products give it a competitive advantage over other durable goods suppliers within the industry.
iv. Value Chain analysis
Value Creating Activities: Its client facing activities include selling of products under 4 different business units; fabrics, electronic products, medical products, and industrial products. Its non-client facing activities is the process through which employees go through to come up with innovative products. Gore also undergoes rigorous patent protection of its intellectual property.
Value Analysis: Gore provides value to its clients by coming up with innovative products for its clients. There are no prescribed manuals for coming up with solutions to clients’ problems at Gore. Individuals use their own judgment to analyze every situation to come up with solutions that do not damage the firm. Employees are allotted 10% of their work time where they can look for opportunities and pursue them. Opportunities are guided by a three step process; whether the project in wanted by the customers, will it be economically feasible, and whether it will make profits. There, however, exist methodical ways as to what can be described as an opportunity at Gore.
Evaluation: Gore’s methodology of coming up with new innovative products has been successful in delivering value to customers
v. SWOT Analysis
5. Business Level Strategy
According to M E Porter, there are 5 generic strategies that a business can pursue. These are mainly divided into cost leadership, differentiation and focus; with the focus strategy having two more variants called differentiated focus and cost focus (Porter, 1985). Gore follows a differentiated strategy where it produces highly differentiated products, acquires patents for them and then sells them at a premium.
The strategy is effective as Gore has been able to shows growth and profitability over the years. It has been profitable ever since its inception and estimated to have $3 billion in revenue. It does not focus on low costs, but in fact spends huge on R&D. Worker compensations are also high, as employees need to be awarded for the new products and opportunities they pursue. High costs result in Gore charging high prices for its differentiated products. For example, Gore’s Elixir guitar strings were priced at $15; 4 times more than ordinary strings. This could be problematic in economic downturns when income and spending of consumers drop.
Gore needs to focus on producing cheap innovative products that cost low and are priced low; making it profitable and affordable to customers. This way it will be able to win a greater market share than it currently has.
6. Competitive Dynamics
Medtronic Public Limited Company is a competitor of Gore. In terms of resource similarity, Medtronic is a larger company operating in 160 countries as compared to Gore in 30, it has more than 4800 patents as compared to 2000 by Gore, and it has 84,000 employees as compared to 9,600 at Gore (Medtronic, 2018). Although accurate data on market share isn’t available, Medtronic had an annual revenue of $16 billion in 2012, as compared to $3 billion for Gore (Medtronic, 2012). In terms of market commonality, the two firms compete in the same medical products market.
Medtronic has been in the market since 1949, whereas Gore was founded in 1958. As a result, Medtronic has had significant first mover advantage as compared to Gore. Medtronic has a much more diversified portfolio of medical products.
The competitive dynamics within the markets that Gore serves is a standard cycle market, as its products are highly differentiated. The products are also patented so it is less likely for competitors to take actions to introduce substitute products.
7. Corporate Level Strategy
The Corporate Level strategy on the basis of diversification falls into two categories; a single business strategy and a dominant business diversification strategy. The former involves focusing on one type of business and serving in a niche market. The latter is involved with diversification into different product or business lines. Gore follows a dominant business diversification strategy as its products revolve around Teflon, ranging from fabrics, electronic devices, medical devices, consumer products, pharmaceuticals and polymer processing.
The corporate level strategy goes along with the organizational structure that allows employees the freedom to pursue opportunities to produce new products. New products allow the firm to diversify. However, problems occur when new products developed are way different from the firm’s current products. For example, Gore-Tex fiber was sold as dental floss successfully by Gore, but this business was eventually sold to Procter & Gamble in 2003 as supermarkets wouldn’t buy just dental floss from Gore when it could buy a combination of all dental products from some other company that sold all of the dental products altogether.
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