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Executive Summary

Acer Inc., initially set up as Multitech by a team of 11 employees led by Stan Shih is

a case of continuous growth except for a few hiccups due to change in strategies and

leadership during certain periods. It was set up with a foundation of a strong

company culture with the employees considered as part of the family of Multitech.

As the company began to grow, there were a lot of challenges posing them in the form

of competition, limited capital, price pressures, relationship between the existing and

the newly recruited top-level executives, impact of the change in leadership from Shih

to Liu, employee layoffs, financial losses over consecutive years and so on.

The case deals with the newly conceived Aspire project by one of Acer’s subsidiaries

and even though Shih is very excited about it, he is contemplating whether to go for

the project or drop it. The company had come out of huge losses just recently and also

AAC, the North American Subsidiary which has come out with the idea, had been a

problem for the past five years as it had made huge losses and its ability to support

itself for such a huge project is also under question. These were the reasons which

have made Shih to stop and think about the feasibility and success of the project and

also its implications on the company and the local and international market.

Our approach to the case has begun my analysing the PC industry and the Acer Inc.

company, its strengths, weaknesses, opportunities and threats. Later on, we have

dissected the strategies followed by Liu and Shih in different stages of growth.

Towards the end, we have suggested our recommendation on whether to take up the

project and how to manage the development and launch of the Acer Aspire

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Industry Analysis The PC industry is a very dynamic industry. It has the following characteristics:

• High growth and fast changing environment • Short product lifecycle • Overnight Technological advancement • Consumer needs keep changing and they require more and more additional

and advanced functions. • Localization important according to different geographic locations.

During the time of the case the challenges for the PC industry are: • Powerful computers became cheap • Penetration of personal computers into consumer and business markets • Growing interest in internet. • Accelerated production in manufacturing • Requirement for local responsiveness.

Porter’s five forces analysis For any company to enter a new industry or industry segment it is important to scan the competitors in the respective industry. One of the tools, which help do this, is Porter’s five forces model. The following is the Porter’s five forces analysis of the PC industry during the time of this case:

1. Degree of Rivalry: High With many established players like Compaq, Apple, IBM etc the competition faced by Acer is intense. Hence Acer will have to counter its rivals by improving product differentiation, creatively using channels of distribution, achieving cost advantage etc.

2. Threat of Substitutes : Low Not many products are available outside the industry to substitute the multimedia PCs. So Acer has to concentrate only on its competitors to gain market share.

3. Buyer power : High Since the customers have a lot of choices of companies to buy computers from, Acer will have to provide innovative features at affordable prices to attract customers.

4. Supplier power: High Since a lot of established players are present in the market, there is tough competition to get the required raw materials, skilled labour etc and PC industries are highly dependent on these factors for their success. Acer has to

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procure skilled labour and raw material at cheap costs to obtain substantial cost advantage.

5. Threat of new entrants : Low Since entry into PC manufacturing industry requires substantial capital investment and technical expertise the threat of new entrants is low.

Company Analysis

The company, currently known as Acer Inc. was started by Stan Shih as Multitech in 1976. He was the CEO and the chairman and the venture was started with a meager capital of $25000. It grew by grasping every opportunity possible and mainly concentrated on promoting the application of the emerging microprocessor technology.

The SWOT analysis of the company gives a better insight into the company.

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The CEO instituted a strong norm of frugality and tried to build a family culture in the organization. It increased the sense of ownership among its employees. Shih’s guidance was only in the form of the slogans, stories and concepts he constantly communicated. The company was guided by four values, which stands in good stead to the company even now. The company was known for its ‘commoner’s culture’ which believed in joining forces with other local companies to succeed against the multinational giants. It was also famous for its ‘Acer 1-2-3’ principle which implied that customer is first, employee second and shareholders third. The highway to targeting overseas markets posed a lot of challenges to Acer Inc. to which it responded strategically through their strong company culture and eventually came out successful as an established brand. Organizational Strategy using IR–Framework

Analysis of Stan Shih’s Strategies In this section, let us have a look at the various strategies of Stan Shih and analyze the impact and results of each of these strategies. Shih’s strategies can be classified broadly into Pre-Liu and Post-Liu period.

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Pre-Liu Period Strategies The strategies that Stan Shih adopted during its early stages of growth and until Leonard Liu comes under this period where the market was relatively new and had high potential growth. Strategies: A Poor Man’s philosophy, Acer 1-2-3, Informal manner, bias for delegation and “hands-off” style, commitment to employee education, equity to employees, “the big rice bowl”, and creating constant sense of crisis Analysis: These strategies gave Multitech enough loyalty from the employees who willingly worked for the company and ensured that it finds a place in the global market share. The independence and encouragement that the employees received from the organization helped in shaping the organization during its early years in business. Until the business grew to be global, this family-like business relationship worked well. As the business grew, the strategy failed due to more of outsiders who do not conform to this practice. Results: A close-knit culture and a family-like relationship among the employees were soon seen disintegrating as the element of profit making as a goal was introduced to the system. It was introduced in a much needy time. Strategies: Independent organizational units and joint ventures as a way of expanding sales Analysis: Every organizational unit in Multitech operated an independent units making its own decisions and competing with outside companies. It was to encourage the competitive spirit of the units and to improve its individual ability to be efficient player in the market. The joint ventures with the local companies in various countries were the easy and low-resource-commitment way to enter into the market using the knowledge of the local partners. It was able to expand its market without much risk of hiring new people or raising more capital. Results: Multitech was able to grow in higher rater in terms of revenue by 265% (from 1976-78) with low cost and high experienced expansion through joint ventures. Strategies: Dragon Dreams Analysis: The strategy of Shih to expand globally seeing huge potential in overseas expansion. He projected sales of $5 billion by 1996 from $150 million in 1986. He created the slogan “The Rampaging Dragon Goes International” and emphasized on the need to identify potential overseas acquisitions, set up offshore companies, and seek foreign partners and distributors. He also reviewed the company’s culture, as Multitech grew global. The seminar on “Renewal of Company Culture” gave birth to a statement of four values that captured the essence of their shared beliefs. Results: Multitech’s global ambition was made possible through these initiatives and the renewal of the company’s culture was necessary as the organization turned multicultural. The outcome kept four key values as the organization values across the globe.

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Strategies: Rebirth as Acer, Going public and Professionalization of Acer Analysis: Though Multitech was forced to change its name as it entered the US market; it went on to build a globally recognized brand called “Acer”. The critics were skeptic about this move and wanted Multitech to focus on OEM manufacturing rather than trying to enter into America’s highly competitive PC making industry. Shih was also convinced into going for a public offer in order to raise enough capital for overseas expansion and to make a market for the equities of the employees. In order to professionalize Acer, Shih brought in about a dozen top-level executives and 100 middle managers. There began a clash of self-styled old-timers and the new comers with international experience. Results: As such the rebranding has not been profitable. The public offer gave Acer the much needed financial leverage but at the cost of further dilution of equity and control. The professionalization initiative gave raise to high employee turnover for the first time in Acer. Post-Liu Strategies Strategies: “Global Brand, Local Touch” Analysis: So far the organization’s core activity of product design, development etc. was handled by the SBUs in Taiwan whereas the RBUs in North & Latin America, Europe and other nations were only involved in the marketing of the product. This mode of operation has led to tight control of R&D leaving no scope of market-specific product development. As Shih realized that they cannot sell a product to Americans that was designed for Taiwanese, he went for a vision to create a truly global organization. He consolidated the various RBUs and established independent entities responsible for every decision for the assigned region. He wanted Acer Group to be a federation of 21 public companies, each with significant local ownership by the 21st Century. It was described as “the fourth way” Results: Acer distributors were offered equity partnerships in the corresponding RBUs they served. Acer also acquired 19% stake in Computec, which later on was named ACLA. Strategies: Client Server Organization Model Analysis: An extension to the idea of “Global Brand, Local Touch” is the Client Server Organization Model, an organization structure that makes it possible the above strategy. With this the independent companies will be making decisions while the Taiwanese would provide the required support and act as a server. Results: Policies were framed such that SBUs could find alternative distributors i.e. other than RBUs, thereby not aiding both the units to co-exist. Strategies: The fast-food business model

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Analysis: The fast-food business concept was another strategic decision, which aimed air shipping small, expensive components to RBUs and shipping the other parts and finally assembling the products in the local markets. Results: It helped Acer to save logistics cost, inventory cost, import duties and local labour cost. But it further intensified the rift between the RBUs and SBUs as the SBUs felt that power and control was being shifted to the RBUs. Leonard Liu’s Strategies and its Implications

Shih appointed a former IBM executive named L.Liu in 1989. Liu performed reengineering on the organization and management approaches, some of which included introduction of SBU/RBU, layoffs, and paratroopers.

The detailed strategies he implemented were:

• Reduced management layers • Introduced productivity and performance evaluations. • Long established product divisions became SBUs responsible for production and

engineering, design, development of PC components and system products, including OEM product sales.

• Major overseas subsidiaries and marketing companies became RBUs responsible for sales, marketing, and distribution.

• Implemented tight controls and began layoffs. Consequences of the above strategies:

• In January 1991,300 of Taiwan-based “30 percenters” were terminated-Acer’s major layoff.

• Profits declined • New iron-fisted management style challenged Acer’s traditional culture. • Employees started resending his lavish spending on top accounting and law firms and

hiring people who stayed at first class hotels, all of which seemed out of step for the Acer’s “commoner’s culture”.

• Managers started questioning his judgments and implemented his directions half-heartedly.

While able to moved Acer to expand globally, Liu was unable to bring stability to the organization by leaving some original value of Acer that lead to his resignation and the comeback of Shih in 1992. Acer – Aspire Project About the Project

The idea of Aspire, the new home PC, was the brainchild of the RBU (Regional Business Unit), Acer America Corporation, the North American subsidiary of Acer Inc. The AAC is headed by Ronald Chwang, who initially joined in technical development and had a

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significant growth and was the president of the Acer/Altos Business Unit prior to becoming the CEO.

Eight years after becoming the CEO, the Director of Product Management, Mike Culver, brought his idea of the home PC, Aspire, into light once he became aware of the increasing opportunities of home computing. The various factors that had motivated Culver to take up this project were:

1. Increasing trend towards working at home 2. Growing interest in the Internet 3. A new trend of multimedia home PC

The market research also revealed that the PC users were looking for one which would not make them think of work. Hence Culver decided that the new Aspire would appeal aesthetically to its customers with a kind of innovative design which would be its differentiation. Culver’s team selected Frog Design, a Silicon Valley Entrepreneur, for the

One of Acer Aspire’s models (sleek profile) Innovative design they had envisioned. Since Acer Inc., with its great organisational culture, encourages employee ideas and innovations, there was an immediate go from the CEO of AAC for the strategic alliance with Frog Design for the cosmetic prototype of the PC. Problem Statement: Stan Shih is in a dilemma whether to support the Aspire Project of the AAC team (which had also faced losses for five years previously) and what would be the implications of his decisions. Recommendations and Implementation

Acer Inc should take up the project of Aspire as there is a lot of scope for development and profits in it. Tapping on the organisational culture which is one of the strong building blocks of Acer Inc., the idea should be encouraged motivating the sense of ownership that Mr.Culver has used to build on his idea. This could be seen as a chance given to the AAC to prove their mettle after five long years of losses. Once the launch of Aspire becomes successful, manufacturing units for Aspire could be set up in the US to cater to the demand locally and at the international level. As the market and the market share for the

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product grows (both locally and internationally), manufacturing units could be shifted to places where they could gain advantages of higher economies of scale and the demand in the US could be catered to by exporting them from those units. This explains the product life cycle theory that could be in place. Development and Logistics

The resources and capabilities for the development of the project could be

sourced strategically from vendors, which would increase their economies of scale. Frog Design was called for the development of innovative design. Similar strategic alliances with distributors and dealers could also help in easy marketing of the product so that it targets the market segment before any of its competitors with similar products do. AAC had started making profit, which meant that the ‘Uniload system’ was working well. It could be used for the Aspire also to save costs on logistics.

Human Resources

Since AAC is an RBU, the development of the project needs considerable technical

help (multimedia and other hardware capabilities) from other SBUs. Apart from the AAC software engineers who are into the product development, other SBUs’ technical experts could also be a part of the Aspire project as contract employees to supplement it with their expertise and knowledge. The core development team of Aspire could consist of all AAC software engineers and the experts from other units. Since the contract employees are from other Acer’s other SBUs, there would also be not any problems of organisational cultural mismatch.

Financing the project

Financing of the project could also be supported from the Taiwanese Headquarters

(apart from AAC’s support) in order to include the additional capabilities (multimedia, aesthetic design and Internet usage) which would act as the differentiator of the product. Recent profits (1993 and 1994) could be substantially invested to develop and launch the Acer Aspire. Without investing in capital intensive production facilities, Acer can take advantage of the local production units available in America to assemble their products. Marketing strategies

1. Position the product in the market in such a way to highlight the innovative aesthetic

design of Aspire as the home PC. 2. Aspire could be positioned in the market as a high-quality innovative product at an

affordable price. 3. Target the young and working customer segment primarily which is in dire need of a

home PC for internet surfing and for other personal uses.

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After Aspire launch – 1995

1. Aspire became the world’s most popular multimedia PC. 2. Acer inc. launched an IPO in Singapore. 3. Total revenues increased to US $5mn.

Acer Aspire - Current Position

1. Acer Inc. has gained the third position in the PC market. 2. Acer Inc. has introduced different series of products in the market – Desktop,

Predator, Notebook, Netbook series later on after its successful initial product launch. REFERENCES:

1. International Business, W L Hill and Arun K Jain, 6th Edition (TATA McGraw Hill Publication)

2. Strategic Management: An integrated approach, Charles W L Hill, Gareth R. Jones.