University of North Alabama Strategic Management Case Analysis Paper Please help complete last portions of group project for business management project. I

University of North Alabama Strategic Management Case Analysis Paper Please help complete last portions of group project for business management project. It is an analysis of the Mohawk flooring company. https://mohawkind.com/ Part 3 of the team project is attached, along with template and rubric. please follow same citation and reference format. I can provide access to the text if it will be helpful. MG 640 CASE PROJECT RUBRIC
QUESTION/STEP
24. How should the
alternative(s) be controlled?
25.
What potential crises should
the firm anticipate?
What are the prospects for
the company going
forward?
EXPECTATIONS (4
POINTS)
•The 5-step strategic
control model is applied
•Specific benchmarks (with
justification) are provided
•Some options for
“changing
course” are identified if
benchmarks are not met
COMMON DEFICIENCIES
•A clear discussion of the
company’s mid-and longterm trajectory is provided
•Possible crises are
identified along with actions
that should be taken to
prepare the firm
•Crises are not discussed
•Control is discussed, but
the control model is not
applied correctly
•There are no benchmarks
•It is not clear what the
company could do if
benchmarks are not met
TEMPLATE
Strategic Control – question 24
[enter text here]
Prospective Crises and Future Prospects for the Company – question 25
[enter text here]
Mohawk Industries, Inc.
Strategic Management Case Analysis
John A. Parnell, Ph.D.
Management Policy 4/20/20
Kristina Hemlinger, khemlinger@una.edu
Alex Ridgeway, aridgeway1@una.edu
Danielle Scott, dscott6@una.edu
Mohawk Industries, Inc.
Strategic Management Case Analysis
PART 1: Introduction
Mohawk Industries, Inc., the commercial and residential flooring giant, was founded as a carpet
company by William Shuttleworth and his four sons in the Hudson Valley in 1875. After the
death of William Shuttleworth, his four sons moved the company to Amsterdam, New York in
1878 where they purchased an empty factory. At the time, New England was emerging as the
carpet capital of the world. The company became Shuttleworth Brothers Company when it
incorporated in 1902.
The growth of Mohawk Industries, Inc. from its inception can be largely contributed to a series
of mergers and acquisitions. Three generations of Shuttleworths were the main drivers of the
business in its first century. In 1920, behind the leadership of the Shuttleworths, the company
had its first of what would become several mergers and acquisitions.1 That year, the company
merged with fellow Amsterdam-based carpet company McCleary, Walin and Crouse, and was
renamed Mohawk Carpet Mills, Inc. In 1956, Mohawk merged with Alexander Smith, Inc. and
became Mohasco Industries. Alexander Smith, Inc. was another New York-based carpet
company, and the merger made Mohasco the world’s largest carpet company. The company
officially became known as Mohawk Industries, Inc. in 1988 after moving its carpet
manufacturing out of Amsterdam and into Georgia. The company went public in 1992, trading
on the New York Stock Exchange under ticker symbol, MHK. Mohawk Industries, Inc. is
headquartered Calhoun, Georgia and has been led by CEO Jeffrey Lorberbaum since 2001. The
acquisition of Dal-Tile in 2002 made Mohawk the prime ceramic provider in North America. It
also opened up the door for international operations. In 2005, Mohawk made a significant
impression in the European market by acquiring Belgium-based company, Unilin. This led to
Mohawk being a prime laminate manufacturer in both the United States and internationally.
1
http://www.fundinguniverse.com/company-histories/mohawk-industries-inc-history/ (accessed 1/30/20).
Just two years later in 2007, Mohawk acquired Columbia Wood Flooring, giving Mohawk a
significant presence in Asia. Mohawk Industries, Inc. offers residential carpet, commercial
carpet, vinyl flooring, wood flooring, laminate, rugs, ceramic tile, stone tile and other home
products under the names: Mohawk, American Olean, Feltex, IVC, Godfrey Hirst, Marazzi,
Durkan, Aladdin, Karastan, Daltile, Unilin, Pergo and Quick-Step. Mohawk’s mission is simple, to
“create innovative products to make life better and to bring you the best floor possible.”2
Mohawk’s mission has evolved over the years by moving towards more eco-friendly flooring.
Mohawk has started using products made with recycled and renewable resources to benefit the
planet.
Mohawk’s business model consists of operating through three business segments: Global
Ceramic, Flooring North America (NA) and Flooring Rest of the World (ROW). The Global
Ceramic segment includes ceramic, natural stone and porcelain tile products used for wall and
floor projects. The Flooring North America segment is made up of floor covering product lines.
The Flooring Rest of the World segment includes laminate, vinyl and hardwood flooring
products, chipboards, roofing elements, insulation boards and medium-density fiberboard.3
Mohawk currently operates in the United States, Australia, Canada, Brazil, Europe, India,
Malaysia, Mexico, New Zealand and Russia. Mohawk has significant competitive advantages in
its production of carpet, rugs, vinyl and stone flooring, laminate, wood and ceramic tile due to
its vertically integrated manufacturing and distribution processes. Mohawk’s industry leading
innovation has produced products and technologies that differentiate its brands in each of its
markets.4
Identification of the Industry
Mohawk Industries Inc. operates primarily in SIC Code 5023 – Home Furnishings, establishments
primarily engaged in the wholesale distribution of home furnishings and housewares, including
antiques; china; glassware and earthenware; lamps (including electric); curtains and draperies;
linens and towels; and carpets, linoleum, and all other types of hard and soft surface floor
coverings. and NAICS Code 423220 – Home Furnishing Merchant Wholesalers, this industry
comprises establishments primarily engaged in the merchant wholesale distribution of home
furnishings and/or housewares5. Mohawk fully falls under each category, providing wholesale
distribution of carpets, ceramic tile, and hard and soft surface floor coverings. While these
descriptions are accurate, Mohawk falls under a more specific industry, plainly put, the floor
covering industry. This industry includes all types of flooring products, carpet, hard wood,
ceramic tile, laminate, linoleum, rubber, vinyl tile, and rugs. In essence a floor covering is
defined as material made from textiles, felt, resins rubber, or other natural or manmade
2
Mohawk Flooring about page, www.mohawkflooring.com/about-mohawk (accessed 1/30/20).
WSJ Markets Mohawk Industries Inc. profile page, www.wsj.com/market-data/quotes/MHK/companypeople (accessed 1/31/20).
4 Mohawk Industries, Inc. investors page, www. http://ir.mohawkind.com/news-releases/news-releasedetails/mohawk-industries-reports-q4-results-0 (accessed 1/31/20).
5 https://siccode.com/business/mohawk-industries-inc (accessed 2/7/2020).
3
substances applied or fastened to, or laid upon the base of a room or space to provide comfort,
durability, safety, and decoration. The market for these types of products is thoroughly
competitive throughout the globe, while the focus of the competitors listed is companies based
in the United States. Companies in this industry have evolved to include organic raw materials
and ecofriendly processes to gain an edge above one another.
There are four notable competitors Mohawk has to compete with in their specific market,
Armstrong flooring, Interface Inc, Dixie Group Inc, and Tile Shop Holdings. There are several
other competitors that could be recognized however, considering that Mohawk Industries is an
American company these competitors are all American company’s and based in the United
States. In order to obtain financial information from each company the competitors are all
publicly held companies.
Beginning with the stock prices of each company, it is clear that Mohawk is the industry leader
among competitors with a current stock price from The Wall Street Journal, February 7, 2020 at
$127.01/share and revenue reported for 3rd quarter only September 2019 at $2.52 billion.
Followed by Armstrong Flooring at $3.57/share and 3rd quarter September 2019 revenue at
$165.6 million, Interface at $16.07/share and revenue reported at $348.35 million, Tile Shop
Holdings at $1.80/share and revenue at $85.94 million, and Dixie Group tailing at $1.20/share
with revenue reported in September 2019 at $95.45 million. In developing the market share of
each industry, relative market share is calculated due to the vast amount of companies and
global presence exact market share is inconclusive. Revenue figures retrieved from
Macrotrends.net, yearly revenues from 2018, Mohawk Industries claims the highest and most
dominating market share in the floor covering industries at 78.9% with reported annual
revenue of $9.98 billion, interface 9.3% with reported $1.18 billion, Armstrong Flooring 5.8%
following with revenue reported at $728 million, Dixie Group 3.2% with reported revenue at
$405 million, and The Tile Shop 2.7% relative market share and the lowest reported revenue for
annual year 2018 at $345.7 million.6
6
https://www.macrotrends.net/stocks/charts/MHK/mohawk-industries/revenue (accessed 2/7/2020).
Tile Shop Holdings
Dixie Group Inc
Mohawk Industries
Interface Inc
Armstrong Flooring
Industry Profitability
Intensity of Rivalry. Mohawk operates in the Home Furnishings and Home Furnishing Merchant
Wholesalers industries. There are some factors in the industry that strengthen the rivalry
amongst the firms, and there are some that weaken it.
• Concentration of Competitors
o The industries consist of mostly large-sized firms (Dixie Group, Interface, Tile
Shop Holdings, Home Depot, etc.). Because of this, firms will most likely not be
able to make moves without being noticed. This can weaken the rivalry within
the industries because companies are constantly aware of what competitors are
doing.
• Industry Growth
o The industries that Mohawk operate in are continuously growing. This decreases
competition within the industry because market share for one firm does not
come at the expense of another. Because of this, the intensity of rivalry is
weakened.
• High Fixed Costs
o Mohawk operates in industries with high fixed costs. Because of this, companies
in the industries must always try to operate at full capacity. When there is excess
capacity, firms tend to cut prices because they will not be able to spread their
overhead over their units of production.7 This intensifies rivalry within the
industry.
• High Differentiation
o Firms in the industries offer highly differentiated products. Because of this, there
is uniqueness of products that may make it difficult for buyers to switch between
rivals. The high differentiation within the industries strengthens the rivalry.
• Large Increments of Capacity
o Firms increase capacity to produce products in large increments. This could lead
to overcapacity in the industry, causing firms to cut prices to sell inventory.8 This
intensifies rivalry among competitors in the industries.
Threat of New Entrants. New firms that enter the industries in which Mohawk operates in tend
to face several barriers to entry.
• Brand Identity and Differentiation
o Mohawk operates in industries that have companies with strong brand identity.
For example, Home Depot, William-Sonoma Stores and Mohawk Industries each
have strong brand identity respectively. This makes it difficult for new firms to
grab market share from the popular brands. Fortunately for consumers, products
in the industries are highly differentiated with not a lot of switching costs;
7
Parnell, J.A. (2017). Strategic Management: Theory and Practice (5th ed.). Academic Media Solutions. p.
29.
8 Parnell, J.A. (2017). Strategic Management: Theory and Practice (5th ed.). Academic Media Solutions. p.
30.
•
•
•
however, unfortunately for consumers, brand identity is strong withing the
industries.
Economies of Scale
o Large home furnishing companies can make it very difficult on new, smaller firms
entering the market. The companies mentioned previously (Home Depot,
Williams-Sonoma and Mohawk Industries) each achieve economies of scale,
lowering their costs. The larger companies in the industries have higher firm
specialization and expertise and can afford to lower prices if need be.
Capital Requirements
o Capital requirements for new companies entering the market are typically high
in Mohawk’s industries. Companies must invest in buildings, equipment,
inventory, advertising, e-commerce, labor, research and development and more.
Government Policy
o New companies entering the industries must adhere to strict government
policies, including strict licensing and legal requirements. For example, home
furnishings and home furnishing merchant wholesalers must comply with the
Occupational Health and Safety Act and the Consumer Products Safety
Commission.
Threat of Substitutes. The threat of substitutes in the home furnishings and home furnishing
merchant wholesalers is relatively weak. One reason for this is because brand identity is so
strong. Consumers with high brand loyalty are not likely to look outside the industry for
substitutes. Substitutes are not part of the industry, so they cannot be identified until the
industry is clearly identified.9 For example, a company like Home Depot, classified as a home
furniture merchant wholesaler, would not be considered a substitute for Walmart, which is
classified as a department store. Another reason why the threat of substitutes is relatively weak
is because there are not many close substitutes for furniture, flooring, carpet, rugs, etc.
Bargaining Power of Suppliers. The supplying industry for the home furnishings and home
furnishing merchant wholesaler industries are not dominated by one or a few companies.
According to Govshop’s Public Spend Forum, there are 4,000+ suppliers for the home furnishing
merchant wholesaler industry.10 Mohawk alone has 52 primary suppliers.11This diminishes the
power of suppliers to control prices. There are not many close substitute products for those
that suppliers offer. There are not many close substitutes for chemicals to make ceramic tiles,
wood, steel, concrete, etc. which is what the majority of suppliers to the home furnishing
merchant wholesaler industry supply. This increases the power of suppliers.
9
Parnell, J.A. (2017). Strategic Management: Theory and Practice (5th ed.). Academic Media Solutions. p.
34.
10 https://govshop.publicspendforum.net/commodity-codes/naics-furniture-and-home-furnishing-merchantwholesalers/ (accessed 2/14/20).
11 Mohawk Industries Supplier’s Performance page,
https://csimarket.com/stocks/suppliers_glance.php?code=MHK (accessed 2/14/20).
Bargaining Power of Buyers. Buyers face few switching costs allowing them to easily switch
between rivals in the industry. Buyers can freely switch from Mohawk to Dixie Group for
example. This raises the bargaining power of buyers in the industry. Buyers have access to
highly differentiated products, so buyers are not able to play one seller against another to start
a price war.12 This decreases the bargaining power of buyers. Buyers are earnings higher
disposable incomes.13 Because of this, there is not much pressure or negotiation from buyers to
lower prices, thus weakening the bargaining power of buyers.
Summary. Mohawk operates in industries that are sensitive to how the economy is doing,
heavily rely on product innovation for differentiation and are highly competitive. The industries
are facing higher demand due to higher disposable incomes, increasing consumer confidence,
low unemployment and momentum in the housing market. As we can see from Porter’s 5-force
model, there are five major factors that contribute to an industry’s profitability. Mohawk
operates in industries where rivalry is a strong force, threat of new entrants is relatively weak,
there are not many close substitutes, and the bargaining power of suppliers is higher than that
of buyers. As of 2018, the home furnishings industry continues to experience increased
expenses. It is also experiencing rising raw material, transportation and labor costs, putting
pressure on contribution.14 Even with the increased costs and expenses, home furnishings is a
profitable industry.
Successes and Failures in the Industry
The Home Depot, Inc., better known simply as Home Depot, is a great example of a successful
company in the Home Furnishing Merchant Wholesalers industry. Home Depot started in 1989
and is headquartered in Atlanta, GA. Home Depot is a publicly traded company and is one of
the 30 stocks in the Dow Jones Industrial Average. Home Depot has experienced success
throughout the years due to innovation in its products, acquisitions and its ability to attract
“professional” customers. “Professional” customers refer to those who prefer to do their home
improvements on their own, thus visiting Home Depot stores frequently. However, perhaps the
most intriguing reason for Home Depot’s success has been its integration of its online business.
Home Depot has done a phenomenal job capitalizing on the rise in e-commerce and the decline
in brick-and-mortar business.15 There are two critical success factors that led to Home Depot’s
successful online business: Home Depot created an omnichannel strategy that remedies the
problems of selling online and its continuous investment and improvement in its online
12
Parnell, J.A. (2017). Strategic Management: Theory and Practice (5th ed.). Academic Media Solutions.
p.35.
13 https://www.nasdaq.com/articles/textile-home-furnishing-industry-outlook-prospects-bleak-2018-09-24
(accessed 2/14/20).
14 https://www.nasdaq.com/articles/textile-home-furnishing-industry-outlook-prospects-bleak-2018-09-24
(accessed 2/14/20).
15 Cochrane, Matthew. (2018, January 1). The “One” Secret to Home Depot’s Success. The Motley Fool,
https://www.fool.com/investing/2018/01/01/the-one-secret-to-home-depots-success.aspx (accessed
2/9/20).
business to make it the consumer shopping experience easier.16 Home Depot’s omnichannel
strategy utilized its brick-and-mortar stores as an asset rather than a liability. In an increasingly
online world, Home Depot used its brick-and-mortar stores to store and display inventory for its
online business. It also made purchasing big ticket items online less stressful because
consumers could come into the store and view the items in person.
Pergament Home Centers was a home furnishing company that specialized in flooring,
wallpaper and paint. The company was founded in New York in 1935 by Louis Pergament and
was a prominent home furnishing chain in the Northeast up until its closing in 2001. The fall of
Pergament Home Centers is largely contributed to the growth and dominance of Home Depot
and Lowe’s. Once Home Depot and Lowe’s entered the New York market, Pergament never
really stood a chance. One factor that led to the company’s failure is that Pergament did not
have an effective plan in place to compete with companies as large and as powerful as Home
Depot and Lowe’s. The competition with Home Depot and Lowe’s was so bad for the company,
it even led to Pergament not being able to pay rent for its locations. Another factor that led to
the company’s demise was the lack of capable managers. John Caufield, executive editor of
National Home Center News, said the company suffered from “revolving-door management.”
The managers of the company had differing philosophies on how the company should
operate.17 Stiff competition from much larger competitors and differing management
philosophies were a recipe for disaster for the once prominent chain.
The Macroenvironment
Political-Legal Forces
Political-legal forces include such factors as the outcomes of elections, legislation, and judicial
court decisions, as well as the decisions rendered by various commissions and agencies at every
level of government.18
•
16
Force #1. Environmental Regulations
• The EPA provides information regarding greener products and services for all floor
covering products as well as where to purchase them. Regulations are in place for each
type of floor covering product, carpet…
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