Strategic Management at the Vermont Teddy Bear Company

Strategic Management at the Vermont Teddy Bear Company

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We will begin with a little history of Vermont Teddy Bear Company. John Sortino founded Vermont Teddy Bear Company in 1981 out of a pushcart in the streets of Burlington, Vermont. Mr. Sortino was an entrepreneur and realized that the company had become too large for him to manage. In order for the company to be successful in the future he decided to step down as CEO. In 1995 R. Patrick Burns was appointed as the new CEO of Vermont Teddy Bear Company. Even thought the CEO changed the company’s name the focus remained the same, "to design and manufacture the best teddy bears made in America, using American materials and labor" (Wheelen and Hunger, 2006, p 22-6).
In 1996 Vermont Teddy Bear Company changed its name to "The Great American Teddy Bear Company". This caused uncertainty with customers. The confusion caused a decline in sales and the company reinstated the Vermont Teddy Bear Company name. In another attempt to explore opportunities for growth, they decided to change their distribution from the signature Bear-Grams to retail catalogs. This also proved to be unsuccessful and eventually the Bear-Grams became the focal means of distribution and strategic marking again since this was the most thriving of distribution methods (Wheelen and Hunger, 2006, p22-4).
Because of the declining performance, R. Patrick Burns stepped down as President and CEO of Vermont Teddy Bear Company in 1997. The Chief Financial Officer, Elisabeth Robert assumed the title with her vision for the future being cutting cost. Roberts decision was to explore offshore sourcing of materials and manufacturing alternatives to lower the company’s cost of goods sold and to broaden its available sources of supply (Wheelen and Hunger, 2006, p22-6). Elisabeth Roberts also thought they were not only in the teddy bear business but the gift business. She defined the competition as being business that "sold chocolates, flowers, and greeting cards. They target the last minute shoppers who want almost instant delivery" (Wheeler and Hunger, 2006, p22-4). They had an advantage by knowing that their competition went beyond toys, allowing them to market their product in several areas with victorious sales.
Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environments to key personnel within the company. The easiest way to perform an environmental scan is through the SWOT Analysis.

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This describes the particular strengths, weaknesses, opportunities, and threats that are strategic factors for a specific company (Wheeler and Hunger, 2006, p10-11).
Management must be aware of their external environment to know the company’s opportunities and threats. To know their strengths and weaknesses, they must be conscious of the internal environment. The IFAS and EFAS tables are used to measure these factors. The scores resulting within the tables tell how well management is “…responding to specific factors in light of the perceived importance of these factors to the company” (Wheeler and Hunger, 2006, p 97 and 129). Shown below are the IFAS and EFAS tables along with the description of factors considered and why.
IFAS TABLE
Strengths Weight Rating Weighted Score Comments
Quality of employees .15 5.0 .75 Known as “Bear People”
Employees/Customer Service .15 5.0 .75 Forever Friendly
Quality of Product .20 4.0 .80 Excellent
Patents/trademarks/licenses .05 4.5 .225 Well situated
Distribution .10 4.0 .40 Expanding and using the internet
Bear Grams .10 4.5 .45 Steadily profitable

Weaknesses
Changing CEO’s .05 4.5 .225 doubtful future/loss of profits
Financial .20 2.5 .50 Unpredictable numbers/excess debt
Total Scores 1.00 4.10

While creating the IFAS there were several strengths and a couple of weaknesses. They are as follows:
• The employees are dedicated and caring people that are known as the “Bear People”.
• The customer service is unique. The personnel that answer the phones are known as “Bear Counselors”. The bears are replaced no matter what and are treated as if they were taken to a hospital. Vermont Teddy Bear Company has formed a world of its own.
• The quality has always been the main concern of the company. The offshore sourcing hasn’t diminished the quality or labor to ensure the perfect bear.
• The company’s most important strength is protecting its product, name and trademark. This will always guarantee that no company will create a comparable product and become competition.
• The distribution methods allow customers to order a last minute gift and see each bear created. The expanded catalogs allowed customers a visual reference for gift purchases.
• The Bear-Grams have been the most profitable distribution method. When other methods were tried in 1996, business declined.
• The first CEO was the founder John Sortino who realized the company needed a stronger leader. Second, Patrick Burns tried changing the company and failed more than twice. Finally there was Elizabeth Roberts who pushed the company to a more cost efficient, effective direction. This weakness became one of its most cost effective factors.
• Finances have been very high regardless of the efforts to cut back and expand. The company remains successful but the financial recovery has been minimal since 1995. There financial fight continues.

EFAS TABLE
Opportunities Weight Rating Weighted Score Comments
Bear Market .20 3.50 .70 Remains profitable
Retail Stores .10 2.0 .20 Created new awareness
Offshore sourcing .15 4.0 .60 Increased profits and lower costs
New look .20 4.5 .90 Market expansion
Small Village .10 2.0 .20 Opened Teddy Bear market to guided tours
Threats
Choc., Flowers, etc .20 4.0 .80 Well situated
Disney Pooh-Gram .10 4.5 .45 Bargained to distribute
2 CEO’s/4 yrs .05 4.5 .225 Company expansion and cost cutting
Total Scores 1.00 4.075
While creating the EFAS Table, The Bear-Grams, Retail Stores, Offshore sourcing, creating a new look and the small Teddy Bear Market were opportunities that were created by scanning the external environmental. In contrast, the Vermont Teddy Bear’s threats were its competitors, the change of CEO’s in such a short period and Disney. The reasoning for all is as follows:
• The Vermont Teddy Bear Company is a huge market that has no record of how many are sold a day throughout the market but remains the top runner.
• The retail stores allowed customers to have a visual awareness and buy the product by sight. This offered a chance for spreading out and escalation.
• Offshore sourcing gave them the prospect to deal with foreign and domestic markets while intensifying the product line and cutting costs. This increased production and profitability. The company did forfeit the all American label and philosophy used for years, but it made no difference to consumers.
• The new look for Vermont Teddy Bear allowed them to expand the market segment and modify its marketing strategy. By being more than just a teddy bear it gave the company an opportunity to be unique.
• The Teddy Bear Market gave guided tours or the customers could walk the area themselves. This allowed a new connection with customers where they could familiarize themselves with the teddy bear.
• Vermont Teddy Bear Company’s competition is chocolate, flowers and greeting card companies. The CEO is aware of their unique product so the threat to the company is low.
• In two years time the company had three CEO’s. For whatever the reason, this could have been seen as volatility and shareholders could have backed out. This could also cause a problem with future loans from banks being concerned with the frequent turnover.
• In the beginning the Disney teddy bear, Pooh, was a possible threat when marketed as a “gram”. To avoid uncertainty with customers the two companies resolved the problem and have an agreement.


Reference:

Thomas L. Wheelen and J. David Hunger. (2006). Strategic Management and Business Policy, 10th ed. Upper Saddle River, NJ: Pearson Prentice Hall.
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