Individual Case Report #1
Sbrain1722
EXTERNALCP24800_pcs.pdf
1.
Contemporary Issues in Business: A Case Approach
Various Professors
BUSI 4023
Yorkville University
Table of Contents
Student Guide to the Case Method: Note 2— Performing a Case Analysis.....................................5
Student Guide to the Case Method: Note 4—Preparing a Written Case Report............................15
Brand W: Strategizing for Omni-Channel Retail.............................................................................29
WestJet: A New Social Media Strategy..........................................................................................43
The Panic of 2008 and Brexit: Regional Integration versus Nationalism........................................55
Data Breach at Equifax...................................................................................................................75
OrganiGram: Navigating the Cannabis Industry with Grey Knowledge........................................103
Contemporary Issues in Business: A Case Approach BUSI 4023
Various Professors Yorkville University
2.
9B18M054
STUDENT GUIDE TO THE CASE METHOD: NOTE 2—PERFORMING A CASE ANALYSIS Susan J. Van Weelden and Laurie George Busuttil wrote this note solely to assist students with understanding and using the case method. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2018, Ivey Business School Foundation Version: 2018-03-22
A case or case study is a real business story that requires you to step into the role of a manager or a member of the management team that faces a dilemma, or the role of a consultant assisting an organization that faces a dilemma. Acting in that role, you are tasked with resolving the issues or problems that the profiled organization is facing at a particular moment in time. Alternatively, you are asked to evaluate and choose among opportunities that exist for the organization at a specific point in time. Those issues and opportunities may be confined to a specific discipline in business, such as accounting, marketing, human resources, or strategic management. However, the challenges often involve several disciplines, reflecting the multi- faceted nature of business in practice. The case method involves learning by doing. It provides you with an opportunity to apply your knowledge and skills to real-life and realistic situations. Listening to class lectures, reading about various business subjects, and performing quantitative and qualitative analyses to solve well-defined problems are all valuable learning tools; however, management skills and knowledge cannot be developed by these methods alone. Management requires more than applying a storehouse of prepackaged solutions or standard answers. Each situation faced by management has its own variables unique to the situation. Using the case method provides you with valuable opportunities to develop and practise skills you will need in those situations. 1. INTRODUCTION TO PERFORMING A CASE ANALYSIS For all case assignments, you will be required to analyze the case by performing one or more of the basic steps of analysis (i.e., identify the issues, analyze the issues, develop and evaluate alternative solutions, and recommend a course of action). Analyze, in the broad sense, refers to the full process of applying the case method. Analyze can also specifically refer to the case analysis step of probing into and dissecting issues. In both contexts, analysis is a critical component of the case method. This note of the Case Guide Series guides you through the specific process of analyzing a case. This method for basic case analysis can be used for several purposes: discussing the case in class, writing a report, making a presentation, and writing a case exam.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
5
Page 2 9B18M054 2. IDENTIFY THE ISSUES The first step in analyzing the case is to identify the organization’s issues, problems, and opportunities (collectively referred to hereafter as “issues”) that you will attempt to resolve. A clear understanding of the issues is paramount; otherwise, your analysis and your generation of alternative solutions will lack the necessary focus. Although some cases will direct your attention toward specific issues (especially early in your business studies), a considerable degree of judgment is usually required to identify the issues. 2.1. Pay Attention to Questions Questions from three sources provide important clues about the key issues: The principal actors or characters in the case. These clues are musings or direct questions raised by
the principal actors themselves. You can usually find these clues at the beginning and end of the case, but they might also be sprinkled throughout the case.
Your instructor. Questions can often be found in the syllabus or course package, or on the course website. These questions are sometimes intended to limit your analysis to issues that fit within a specific topic of discussion. At other times, these questions are intended to focus your attention on the most important issues.
The author of the case. In cases presented in textbooks, the case author sometimes provides attention- directing questions at the end of the case.
If, in your analysis of the case, you have not answered all of the questions posed in the case or in your course syllabus, you have likely either omitted an important issue or become sidetracked by minor issues. Moreover, even if you have resolved some issues, if you have not addressed all of the questions posed in the case or in your course syllabus, your analysis will likely fail to totally satisfy your instructor—and later, your supervisor or client. Especially in upper-level courses where the cases are, in general, more complex, your instructor could expect you to look beyond the more obvious issues or those suggested by the case principals to consider issues that people close to the situation could have overlooked. You should address these supplementary issues in addition to, not instead of, addressing the specific requests posed by principals in the case or by your instructor. 2.2. Distinguish Symptoms from Issues To correctly identify issues, it is important to distinguish between symptoms and underlying causes. Your goal should be to focus on the underlying causes. To uncover them, ask the question “Why?” until you can no longer provide a satisfactory answer. For instance, an organization might be suffering from low productivity. Asking why productivity is low might lead you to conclude that employee morale is low and that employees are not motivated to perform well. Probing further, you might find that both of these issues arise because the reward system does not adequately recognize good performance. Low productivity and employee morale are symptoms of the underlying cause. Alternatively, an organization might be plagued by low customer retention. Asking why customers are going elsewhere might lead you to conclude that customer service is poor, product defect rates are high,
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
6
Page 3 9B18M054 existing competitors have improved their product, and a new competitor has entered the market. The last two items are root causes because asking “why” will not lead to further answers. Therefore, they are issues to resolve even though they are not within the organization’s control. Asking “why” for the first two items might lead you to the third issue, namely that the company’s goals and reward systems emphasize efficiency rather than product quality. 2.3. Limit Issues to a Manageable Set Once you have identified the issues, you might need to reduce them to a manageable size to enable you to effectively carry out the subsequent steps in case analysis. For some cases, you might be required to resolve a single issue. However, you should still identify sub-issues, and decide which are most important and which you have the time and space to tackle. For example, the issue might be to set an admission price for a new museum. Possible sub-issues to consider include fit with the mission of the museum, customers’ ability and willingness to pay, the possibility of differential pricing (e.g., lower rates for students), competing forms of entertainment and their admission prices, costs that need to be covered by the admission price, and the break-even point. To identify the most important sub-issues, consider the information in the case, the questions discussed in Section 2.1, and the nature of the course. Other cases might present multiple issues. You might find it helpful to look for relationships among the issues and cluster them under one overarching issue. For instance, in an organizational behaviour case, you might be able to trace several issues—such as unclear decision making processes, inability to deal with job stresses, and inability to delegate—to the root issue of inadequate training of managers. Dealing with one issue is easier than dealing with three separate issues and will lead to better solutions. Other cases might not have an overarching issue; instead, you might face a seemingly unconnected set of distinct issues. You will then need to prioritize the issues, using the questions referred to in Section 2.1, and your judgment, so that you give adequate time and attention to the most important issues. 3. ANALYZE THE ISSUES Analysis involves examining the issues in detail. It requires that you dissect the issues and consider them closely to understand their nature and key elements. 3.1. Use Case Facts One aspect of analysis is using case facts to develop a detailed understanding of the issues. You can use the case facts to help build logical arguments, develop findings, and draw educated inferences rather than casual guesses. For instance, if the issue in an organizational behaviour case is inadequate managerial training, facts from the case should indicate that the training provided to managers did not sufficiently clarify decision making processes or how to delegate tasks, or both. Or, for a marketing case, an issue with increased competition might be supported by the case facts describing the entrance of new competitors into the market, new products introduced by competitors, or price reductions offered by competitors. Many important case facts are contained in a case’s figures and exhibits. These case facts could include data about the worldwide market size, the competition, the company’s revenues and profit, industry sales, product prices, or organizational charts. Study each figure or exhibit to determine the key insights it offers.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
7
Page 4 9B18M054 Go beyond the specific facts highlighted in the body of the case; figures and exhibits usually include additional facts that can be interpreted in other ways to enhance your analysis. 3.2. Use Business Concepts, Models, and Tools Another aspect of analysis is the use of business concepts, models, and tools to analyze the issues. For example, in an organizational behaviour case, you could use equity theory or expectancy theory to explain why an organization’s reward system has been unsuccessful in motivating employees. In a marketing case, you could apply the model of a product life cycle or the concept of a target market; you could also calculate market share and changes in market share. To analyze issues in an accounting case, you could use tools such as contribution margin analysis or capital budgeting. In an integrated strategic management case, you might apply the concepts of value chain and competitive advantage, compute financial ratios, and apply tools such as a competitive position matrix and Porter’s five forces framework. You will sometimes be given directions to apply specific concepts or tools; other times, you are expected to use your discretion in selecting the most relevant concepts or tools to apply. For some cases, the analysis will largely rely on qualitative models and tools. However, many cases will involve both qualitative and quantitative elements. Note 7 of the Case Guide Series—“Using Common Tools for Case Analysis,” No. 9B18M059—describes some common qualitative and quantitative tools for analyzing issues and possible courses of action. 3.3. Use Outside Research Sparingly Analysis might also include conducting and integrating outside research—for example, researching the industry and competitors—to supplement the information provided in the case. However, for many cases you will encounter in your studies, you will not be asked to obtain outside research beyond any background knowledge required to understand the facts of the case. This approach is consistent with the requirement that you put yourself in the role of either the manager or a member of the management team making the decision. You are asked to make that decision based on the same information the actual managers in the actual organization had at that actual point in time. 4. DEVELOP AND EVALUATE THE ALTERNATIVES In this step of a case analysis, you first identify alternative solutions to address the issues you previously identified and analyzed, and then evaluate the advantages and disadvantages of each alternative. The best alternatives will resolve more than one of the identified issues. 4.1. Develop Alternative Solutions When identifying alternative solutions, go beyond the status quo (which might or might not be a viable solution, depending on the company’s situation) and beyond identifying a poor alternative and a very good one. Strive to develop multiple viable alternatives that are not chosen with a bias toward or against a particular course of action. Creative thinking will enable you to develop novel approaches. Avoid a premature evaluation of the alternatives, and try to develop as many alternatives as possible.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
8
Page 5 9B18M054 Even if you know the course of action the organization ultimately chose, resist the temptation for that knowledge to bias your development and evaluation of alternatives. This topic is further discussed in Section 5.3. 4.2. Evaluate the Alternative Solutions Assessing the advantages and disadvantages of each alternative solution represents another form of analysis, as is quantifying the financial impact of an alternative solution. Some of the case analysis tools described in Note 7 can be used to analyze alternative solutions, in addition to being used to analyze issues. When you evaluate your alternatives, present a balanced assessment of both the advantages (pros) and disadvantages (cons). Use of biased or one-sided arguments undermines both the usefulness of your analysis and its credibility. Where possible, suggest how to overcome any significant disadvantages. If you have difficulty generating pros and cons, establish a set of criteria for decision making and use those criteria to identify pros and cons. For example, in a strategic management case, decision criteria might include the degree to which the action: fits with the organization’s mission, value proposition, and goals; fits with stakeholder preferences; is profitable; increases market share; enhances the organization’s brand; capitalizes on specific external opportunities; helps to mitigate external threats; uses internal strengths; avoids or mitigates internal weaknesses; builds on an existing competitive advantage or helps to create a competitive advantage; requires additional resources and competencies; can be accomplished within the organization’s existing structure; or mitigates or increases risks, including environmental and reputational risks. The principal in the case or the questions in your syllabus or course pack might have alerted you to some of the decision criteria to be applied. If so, be sure to use those as your starting point in establishing a set of decision criteria. Measuring alternatives against decision criteria also helps to keep the analysis consistent, reducing bias. For instance, by applying the criteria, you avoid citing a loss of market share as a disadvantage of one alternative but overlooking the same disadvantage in another alternative that is your implicit favourite. When identifying pros and cons, be as specific as possible. For instance, instead of stating that an alternative will be unprofitable, indicate that the alternative will result in net losses of $72,800 and $52,500 in years one and two, respectively. Instead of claiming that an alternative will increase market share, indicate that it will increase market share by an estimated three to four per cent by year five. Rather than arguing that an alternative will capitalize on an organization’s strengths, indicate the specific strengths that will be capitalized on and how they will be leveraged. Fo
r us
e on
ly in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
9
Page 6 9B18M054 When working with financial measures, if you can incorporate all of the information about revenues and costs into a profitability measure, it is unnecessary to then itemize individual revenues or expenses as pros and cons. Doing so would be redundant and is not nearly as valuable as doing the financial analysis required to determine profitability. Your evaluation of alternatives should also go beyond obvious disadvantages such as being “costly” or “time-consuming.” A costly alternative might still be highly advisable, especially if it generates sufficient advantages. Almost all courses of action involve some cost and time, so clearly distinguish how these factors vary from one alternative to the next and, when possible, provide evidence. For instance, one potential product line might require a significant push by the sales department to make it successful, whereas another might not require as much effort because it fits better with the organization’s existing product lines and target market. Once you begin to evaluate your alternatives, you will probably be able to quickly discard a few alternatives after some preliminary analysis. For instance, in a strategic management case, one alternative could lie far outside the organization’s existing competencies and contradict one or more of the organization’s clearly stated goals. Discarding one or more unsuitable alternatives will allow you to focus your detailed analysis on the more feasible and more helpful alternatives. Nonetheless, some preliminary analysis is important to ensure that you do not rule out options too quickly as a result of your own biases. It can sometimes seem expedient to group a few alternative solutions and evaluate them as a package. However, evaluating combined alternatives can be difficult because each component usually has its own pros and cons. Also, evaluating packaged alternative solutions often obscures some of the issues, resulting in an evaluation that is less thorough than if each alternative had been evaluated separately. Therefore, it is usually preferable to wait until the recommendation phase to combine alternatives. 4.3. Use Case Facts and Business Concepts, Models, and Theories to Evaluate the Alternatives When evaluating alternative solutions, you will have another opportunity to introduce key facts from the case and to apply concepts, models, and theories from the course to support your analysis. Some of those concepts and models will tie directly to the decision criteria referred to in Section 4.2. For instance, in a strategic management case, alternatives can be evaluated by assessing their fit with stakeholders’ preferences and by identifying resource gaps that would need to be filled to implement each option. In an organizational behaviour case, if negative group norms are an issue, you could use theory to propose ways to build positive norms, such as rewarding desired behaviour and providing feedback about unacceptable behaviours. In a human resource case, you could evaluate alternative ways to recruit new managers by considering the theoretical pros and cons of various recruitment techniques and assessing their prospects for success, given the company’s specific needs and circumstances. In a finance case, solutions could be evaluated against the company’s required rate of return or payback period. In a marketing case, you could demonstrate how a proposed product is designed to meet the needs of the firm’s current target market or how its short development time would allow the firm to begin selling the product before its competitors do. The examples in the preceding paragraph illustrate that the evaluation of alternative solutions usually involves some additional analysis. The analysis of the issues and of the alternative solutions should fit together; the concepts, models, and theories used to analyze the issues should be consistent with those used to evaluate alternative solutions. The goal in both exercises is to provide analyses that demonstrate sound Fo
r us
e on
ly in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
10
Page 7 9B18M054 argument and logic, and are supported by careful use of the case facts and appropriate analytical techniques (some of which are described in Note 7). 5. RECOMMENDATIONS 5.1. Apply Criteria for Making Sound Recommendations The last step of case analysis is to choose your recommended solution to the issues. Your recommended solution will often consist of a combination of alternatives because issues are usually not so simple that a single solution will suffice. Your goal is to develop recommendations that are useful, given the issues that you are trying to resolve; consistent with your analysis; reasonable, given the organization and its environment; feasible, given the organization’s resources; and convincing to your reader. Articulate the decision criteria (e.g., those listed in Section 4.2) that you have established and applied in developing your recommendations. If the principal in the case has established the decision criteria, your recommendations should explicitly address how your recommended solution meets those criteria. 5.2. Craft Your Recommendations Your recommendations should include sufficient operational-level details to enable their implementation. For example, specify who should implement the recommendations, how, when, and in what priority. You might want to develop a more complete implementation plan and attach it to your report as an appendix, after briefly referring to the plan in the body of the report. This approach helps to build a convincing, persuasive argument for your recommendations. If you are specifically asked to design a separate implementation plan, your recommendations will be more general, and the details regarding who, how, when, and in what priority will be included in the implementation plan. Your recommendations should address all the issues you identified, and should be both supported by and consistent with your analysis. Where appropriate, demonstrate how and why your recommendations would be acceptable to key individuals in the organization. Ensure that the organization is financially able to implement the action plan and has the expertise, time, and other organizational resources necessary to do so. 5.3. Base Your Recommendation on the Information You Have Avoid recommending that further information be obtained or that additional analysis be completed. Instead, base your recommendation on the information you have, even if you believe more information is needed. Managers rarely have all of the information they desire. If further analysis is absolutely essential, your recommendation should specifically state what should be done, why, and by whom. If the assigned case study is based on actual events, you might already know the course of action that management chose, or you might be able to obtain this information through further research. Resist the temptation to recommend this alternative, which assumes that management made the best decision. Base your recommendation on the information that management had at the time it faced the decision and on the analysis that you conduct. Only time allows us to evaluate the effectiveness of an organization’s actual Fo
r us
e on
ly in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
11
Page 8 9B18M054 chosen course of action. Even years later, we might not know whether outcomes would have been better for the organization had another alternative been chosen. 5.4. Evaluate Your Recommendations Before finalizing your recommendations, take time to evaluate your recommended solution by asking the following key questions: Does the recommended solution address the issues identified in the analysis? Is there theoretical support for the solution? Does the recommendation address the pros and cons identified when you evaluated the alternative solution? Does the recommendation suggest how to mitigate or overcome the most critical disadvantages,
including any risks posed to the organization? Does the recommended solution meet organizational goals? Is the recommended solution financially viable? Is it feasible from a resource perspective? Is the recommended solution acceptable to various stakeholders of the organization (e.g., management,
employees, shareholders, and customers)? Does the recommendation provide sufficient details to enable the organization to implement it? Being able to answer these questions affirmatively will help your recommendations meet the key criteria of being useful, consistent, reasonable, feasible, and convincing. 6. VARIATIONS ON PERFORMING A FULL CASE ANALYSIS The basic four steps (identify the issues, analyze the issues, develop and evaluate alternative solutions, and recommend a course of action) are required for a full case analysis. This section discusses two variations to a full case analysis: analytical cases and partial case analysis. 6.1. Analytical Cases Some cases might not describe the issues to be resolved but might, instead, describe issues either in the context of a success story or in a situation where it is too late to resolve the issues. In such cases, the focus is on analyzing what can be learned from the organization’s successes or failures so that future prospects for success can be enhanced, or similar predicaments can be avoided or better handled by either the organization in the case or others. Business concepts, models, and tools should still be applied. For example, the leadership of an organization could be analyzed to identify which styles of leadership were evident and their effectiveness in the circumstances described in the case. Alternatively, a corporate initiative might be analyzed to determine its effectiveness in addressing resistance to change and its application of other change management principles. 6.2. Partial Case Analysis Due to time or space constraints, your instructor might require only a partial case analysis. For example, you might be asked to focus only on identifying and analyzing the issues. Alternatively, the case might clearly define the issues, and you might be asked to only identify and evaluate possible alternative courses of action. Another form of partial case analysis is a “directed case,” in which you are directed to answer a specific set of questions about the case.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
12
Page 9 9B18M054 Even though a full case analysis might not be required, it is still important to see how the task you are asked to perform fits within the larger picture of a full-fledged case analysis involving the four steps discussed above. 7. CASE ANALYSIS AND ACADEMIC INTEGRITY Because case analysis is complex, it may often seem helpful to discuss the case informally or formally with other students before participating in a class discussion, writing a report, or making a presentation. Managers and consultants often discuss problems with other people, within the constraints allowed by confidentiality. Therefore, your instructor may allow, encourage, or even require such discussion. However, to ensure academic integrity and to avoid plagiarism, unless your instructor has specifically indicated that some degree of discussion is permissible, you should consult with your instructor before engaging in any collaboration. This restriction on outside discussion is especially necessary when preparing reports and presentations. It may also seem helpful to search the Internet for teaching notes for cases or for case reports or slide presentations prepared by other students. Academic integrity requires that you refrain from using such resources, in full or in part. Any attempt to use the work of others and to pass it off as your own is plagiarism. If the instructor is suspicious that plagiarism might be involved, you may be asked to upload a copy of your case report through Turnitin.com. While using the work of others may appear to provide a shortcut to a good grade, the quality of online sources and the work of other students is often suspect, at best. Most importantly, you deprive yourself of the learning opportunities the case method offers.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
13
3.
9B18M056
STUDENT GUIDE TO THE CASE METHOD: NOTE 4—PREPARING A WRITTEN CASE REPORT Susan J. Van Weelden and Laurie George Busuttil wrote this note solely to assist students with understanding and using the case method. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2018, Ivey Business School Foundation Version: 2018-03-22
A case or case study is a real business story that requires you to step into the role of a manager or a member of the management team that faces a dilemma, or the role of a consultant assisting an organization that faces a dilemma. Acting in that role, you are tasked with resolving the issues or problems that the profiled organization is facing at a particular moment in time. Alternatively, you are asked to evaluate and choose among opportunities that exist for the organization at a specific point in time. Those issues and opportunities may be confined to a specific discipline in business, such as accounting, marketing, human resources, or strategic management. However, the challenges often involve several disciplines, reflecting the multi- faceted nature of business in practice. The case method involves learning by doing. It provides you with an opportunity to apply your knowledge and skills to real-life and realistic situations. Listening to class lectures, reading about various business subjects, and performing quantitative and qualitative analyses to solve well-defined problems are all valuable learning tools; however, management skills and knowledge cannot be developed by these methods alone. Management requires more than applying a storehouse of prepackaged solutions or standard answers. Each situation faced by management has its own variables unique to the situation. Using the case method provides you with valuable opportunities to develop and practise skills you will need in those situations. 1. INTRODUCTION TO PREPARING A WRITTEN CASE REPORT The method for a basic case analysis presented in Note 2 of the Case Guide Series—“Performing a Case Analysis,” No. 9B18M054—can be used for various purposes: discussing the case in class, writing a report, making a presentation, or writing a case exam. This note guides you in preparing a written case report by applying the four steps of case analysis described in Note 2. The report described in this note assumes that you are performing a full case analysis (rather than doing a partial case analysis or taking an analytical approach). The guidelines relating to format, organization, and written communication are for general use. You should always defer to your instructor’s requirements, which might differ and be more specific.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
15
Page 2 9B18M056 2. PLAY YOUR ASSIGNED ROLE For each case assignment, you will be asked to adopt a specific role as a student, consultant, employee, or manager who is writing a report to a specific person or persons. Depending on your assigned role, your analysis could be written as a report to your instructor, your supervisor, the board of directors, or to the client who engaged you as a consultant. In this note, we generally refer to the person who will receive the report as the reader. It is important that before you begin writing your report, you have a clear understanding of who will be reading your report and that person’s (or those persons’) needs and expectations. Your report should be written with your reader(s) in mind. Your audience is reading the report to gain an understanding of how you propose to solve an issue. They are pressed for time and are often inundated with information. They want their information quickly and easily without having to bring extra thought to the process of reading. The following are some suggestions to make your report reader-friendly: Avoid jargon, inside terminology, and undefined abbreviations. Keep your sentences simple and straightforward, use paragraphs to group similar thoughts, and keep
your paragraphs short. Make the information easy to find by using headers and page numbers, clear and informative section
headings, and accurate cross-references. Avoid decorative elements and be generous with white space—extra lines—between sections so your
reader can easily see how information is clustered. Always use professional tone and tact. However, if you are playing the role of an external consultant, you can be a little bolder in making your points than if you are playing the role of someone from within the organization—especially when writing to a supervisor. 3. IDENTIFY THE ISSUES 3.1. Be Clear A high-quality case report focuses on the most important issues and clearly identifies those issues at the start of the report. Without a clear statement of the issues, problems, and opportunities (collectively referred to hereafter as “issues”) that you intend to address, your report will wander aimlessly from one topic to the next and be of limited value to your reader. 3.2. Settle on a Manageable Set of Issues It is important to arrive at a set of relevant issues that are manageable within the size constraints of your written report. (See Note 2 for more information about evaluating and prioritizing issues.) In a short report (e.g., 1,000 to 1,500 words), you can usually effectively address only two or three issues. In a longer report (e.g., 2,500 to 3,000 words), you might be able to address five or six issues. Focusing in-depth on a few key issues is generally more productive than a cursory analysis of many issues. Particularly in long or complex cases, you will need to make choices among the issues and determine priorities.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
16
Page 3 9B18M056 3.3. Use Your Issue Statement to Let the Reader Know What to Expect An easy way to let the reader know what to expect in the upcoming analysis is to ensure that the issues you identify are the same issues that you subsequently analyze. Something you first identify as an issue might sometimes dissipate or diminish in priority after you begin your analysis, and other issues might surface. This change in priorities is part of the normal iterative process of case analysis. Although you should begin your draft report with a clear issue statement, the issue statement will evolve to a certain degree as you complete your report. Double-back after you have completed your initial analysis of the issues and revise your issue statement accordingly. In the final version of the report, the issues you identify at the start of the report should be in absolute agreement with your subsequent analysis and recommendations. For a complex case, your issue statement should also identify the sub-issues associated with each issue. Noting the sub-issues will help to prepare the reader for the analysis section. For instance, the owner of a business might contemplate whether to expand to the United States. As an issue statement, the question of whether to expand to the United States is superficial and can be made more precise. A full issue statement might include whether the company has the resources to successfully execute such a move, whether the American market is more attractive than the Canadian one, and whether such a move fits with the preferences of others who own a significant share of the company. The reader of the report is then set up to expect, for example, a resource gap analysis; an analysis of market size, growth trends, and the degree of competition in both the American and Canadian markets; and an analysis of stakeholder preferences. To provide another example, a 1999 strategic management case about WestJet Airlines Ltd. asked two questions: “Should WestJet move into Eastern Canada? If so, how soon and to what extent?” For that particular case, a sample issue statement might be:
The main issue facing WestJet is whether to move into Eastern Canada. Three key factors to consider in this decision are the degree to which such a move will require the company to deviate from its successful Southwest model, how the move would fit with corporate goals, and the level of competition WestJet would face in Eastern Canada compared with in Western Canada. The second issue facing WestJet is to determine the timing and magnitude of any eastward expansion that would be compatible with the company’s goals and resource constraints, and align with competitors’ plans and capabilities.
This issue statement provides a logical foundation for the following analyses: an assessment of what the Southwest model involves, and how it gives WestJet a competitive advantage; an assessment of goals, such as keeping debt low and continuing to grow in Western Canada; and an analysis of the competition posed by Air Canada and other low-fare entrants in both Eastern and Western Canada. Although the issue statement does not explicitly lay out the types of analyses that will follow in the report, it should provide enough hints and clues that a reader will not be surprised to find a section on “The Southwest Model” or “Analysis of the Competition.” This approach to building an issue statement also ensures that you are being deliberate in selecting and applying various analytical tools and models. Remember, a reasonable degree of clarity about the issues is necessary to begin preparing your case report, but expect your understanding of the issues to evolve as you progress through your analysis. Ensure that your final issue statement reflects your refined identification of the issues and accurately orients the reader to the rest of the case report.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
17
Page 4 9B18M056 4. ANALYZE THE ISSUES 4.1. Test the Case Facts To produce a high-quality report, you need to present the case facts in a way that contributes to your analysis and adds value to your report. Avoid merely reiterating or rehashing case material. When you restate case facts, be sure they form part of a logical argument and are accompanied by inferences and findings. To ensure that you are using the case facts appropriately, read each sentence in your report that includes a fact from the case and ask yourself, “What’s my point?” If the answer to this question is not addressed in the same sentence or in the next few lines of the report, either delete the fact or explain the inference that you intended to draw. For example, there is little value in repeating that “the company currently holds a five per cent market share in Canada” unless you use that fact to support, say, the contention that the company has room to grow its Canadian customer base prior to expanding into the United States. You do not need to use a formal footnote when referring to material from the case. Direct quotations from the case should be acknowledged by citing the page number of the case in the body of the report, but keep direct quotations to a bare minimum, using them only where special emphasis is desired. 4.2. Use Business Concepts Business concepts that are used as part of your analysis should add value to your report and be relevant to your reader. Avoid discussing theories or models unless you explain them sufficiently and fit them to the situation in the case. For example, discussing what constitutes a competitive advantage is of little value unless you then proceed to use the VRIO model developed by Jay Barney to illustrate that the organization’s resources and capabilities are valuable, rare, inimitable, and that the firm is organized to exploit those resources and capabilities. The required level of explanation depends on the reader’s knowledge, educational background, and organizational position. You might not need to explain common business terms, but do not assume that your reader is familiar with academic or business models such as Victor Vroom’s expectancy theory or the growth–share matrix developed by Boston Consulting Group. Some business terms, such as competitive advantage and core competencies, are widely used but different people might understand them differently. When in doubt, briefly explain a term. For example, you might specify that an organization’s competitive advantage refers to how it intends to attract customers by offering something that is of value to them and differs from what its competitors offer. Specifically and deliberately apply business concepts to the case. For example, a discussion of Raymond Vernon’s model of a product life cycle should categorize the company’s products into various life cycle stages and assess the implications of having two-thirds of the company’s products in the maturity and decline stages. A case report is not an academic research report; avoid writing that is overly theoretical and academic. Considerable skill is required to successfully integrate business theory so that it is perceived as practical and not overly conceptual. At the same time, you want to show your instructor that you are able to apply the course material and demonstrate to the intended reader that you have the appropriate expertise relevant to the situation.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
18
Page 5 9B18M056 4.3. Use External Research Sparingly To keep your task of writing a case report more manageable, most of your reports will not require external research. When your instructor does request external research, the results of your research should also be presented to add value to the report, making it clear why the research is relevant to the situation. Never append external research to your written report without using that research to help dissect issues or build arguments. Acknowledge the source of any external research with a reference note (e.g., a footnote, endnote, or in-text citation). 4.4. Adhere to Length Constraints Your instructor will usually set a word or page limit for your report. Learning to be concise and efficient with your writing will prepare you for writing excellent reports for busy professionals. The analysis portion of your report should be substantial. Together with the evaluation of alternatives, it will form the bulk of your report. However, because of length constraints, be judicious in deciding how much and which parts of your analysis to include in your written report. Some of the analysis is mainly for your own benefit—helping you understand the organization and its industry—rather than being of value to the reader. Your instructor might ask you to include such analysis in an appendix, with appropriate references to the appendix in the report. Alternatively, your instructor might ask you to exclude such analysis from the report to make room for analysis that will be of more value to the reader. 5. DEVELOP AND EVALUATE YOUR ALTERNATIVES Depending on how long your report is and how complex the issues are, you could evaluate as few as three or four alternatives or as many as seven or eight. It is rarely possible to do a good job of evaluating more than eight alternatives. Sometimes, it can seem expedient to group a few alternatives together and evaluate them as a package. However, it can be difficult to evaluate combined alternatives because each component usually has its own pros and cons. As well, evaluating packaged alternatives often obscures some of the issues and results in an evaluation that is less thorough than if each alternative had been evaluated separately. Therefore, it is usually preferable to wait until the recommendation phase to combine alternatives. Rather than providing a complete evaluation of the pros and cons of all your alternatives, it might be sufficient to only briefly mention some of the alternatives and give a short rationale for why they were discarded early in the evaluation process. Since analysis of alternatives is a key part of any written report, ensure that you sufficiently discuss your selected alternatives in the body of the report. Listing the pros and cons in bullet form or presenting such information in tables is an efficient way to evaluate alternatives. However, avoid using phrases that have ambiguous meanings, such as “requires additional resources” or “uses core competencies.” Such phrases leave the reader to draw inferences. Instead, specify the resources that are required or the core competencies to be used.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
19
Page 6 9B18M056 Using lists and tables can also have disadvantages. Too many lists and tables can lead to a report that appears cluttered and is difficult to read. However, a report that is text-heavy can also be cumbersome to read. Therefore, strike a balance. For instance, discuss key pros and cons in paragraph form and supplement the text with a table containing additional pros and cons. Avoid duplicating content in both paragraphs and tables. To help evaluate your alternatives, establish a set of decision criteria and use those criteria to identify pros and cons. Measuring alternatives against decision criteria also helps to keep the analysis consistent, reducing bias. (Evaluating alternatives is discussed in detail in Note 2.) 6. MAKE RECOMMENDATIONS In general, avoid introducing new analysis or new alternatives in the recommendations section of your report. Your recommended solution will be one of the alternatives or a combination of the alternatives you evaluated. In some instances, in an effort to keep a report short, you might be asked by your instructor to combine your evaluation of alternatives with your recommendations and present only the solutions you recommend for adoption. Your goal is to develop recommendations that will be useful, given the issues that you are trying to resolve; consistent with your analysis; reasonable, given the organization and its environment; feasible, given the organization’s resources; and convincing to your supervisor or client. Your rationale should capture the main reasons for adopting your recommendations and show how you have mitigated any significant drawbacks. Your recommendations should be specific enough that they provide the organization with an action plan, including who will implement the recommendations, how, when, and in what priority. In addition to discussing the basic plan of action in the body of the report, it is helpful with lengthy cases to provide an implementation chart in an appendix to capture the details at a glance. Some instructors prefer that you separate your recommendations and implementation plan into two sections of your report, and provide a more expansive action plan with priorities for implementation, detailed timelines, and personnel assignments. 7. CONTENT AND FORMAT OF YOUR REPORT 7.1. Length Your instructor will specify the number of pages or words for each case assignment. Adhere to the restricted length by organizing your report effectively, prioritizing your material, avoiding repetition, and choosing your words carefully. As discussed in Section 3.2, select a manageable set of issues and ensure your set of alternatives is also workable. Presenting some of your analysis and findings in figures or appendices is an economical use of space, often allowing you to present more information in less space than you could in the body of your report (see Section 7.11). 7.2. Font Use the font specified by your instructor in the assignment or course syllabus or on the course website.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
20
Page 7 9B18M056 7.3. Spacing Unless your instructor directs you otherwise, reports should be double-spaced. In business, reports are normally single-spaced; however, double-spacing is usually used in academia to allow room for your instructor to provide feedback. 7.4. Page Numbers The executive summary, which appears directly after the cover page, is not numbered, nor is it calculated in the page count or word count. The remaining pages should be numbered, but the page number should not be shown on the first page. Pages containing appendices should also be numbered, using Roman numerals. Appendices are not included in the page count or word count, although your instructor might set a separate limit on the number of appendices or the number of pages used for appendices. 7.5. Headings and Subheadings Use headings even in short reports; include subheadings in longer reports. Headings and subheadings improve readability by informing your reader what to expect and by keeping your reader oriented within the structure of your report. They make it easier for a reader to return to the report and quickly find needed information. Headings and subheadings also help you to organize your thoughts more carefully, keeping you and, subsequently, your reader focused. 7.6. Cover Page A professional report should include a cover page that identifies the name of the person or persons for whom the report is prepared, the name of the person or persons who prepared the report, the date, and the subject of the report, as shown in the following sample. REPORT TO: Jordan Kerr, President, Kerr Manufacturing Ltd. FROM: Nancy Drake, Eagle Consulting Group DATE: September 20, 2017 SUBJECT: Customer Retention Difficulties 7.7. Executive Summary An executive summary is required unless your instructor specifies otherwise. Write the executive summary after you complete the rest of the report, but place it immediately after the cover page and before the report’s main content. The executive summary is designed to outline the report’s most important issues and recommendations. It should stimulate the reader’s interest in the rest of the report, (e.g. by including profit projections for your recommendations, or for indicating the projected growth in market share) convincing the reader that reading the whole report will be worthwhile and valuable.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
21
Page 8 9B18M056 For the size of report you will produce while a student, the executive summary should not exceed one page (250 words). For a very long report (e.g., 40 or 50 pages), a two-page summary might be justified. 7.8. Introduction The first section in the report is a brief introduction, which should capture the purpose and scope of the report. The purpose of the report states why you have been asked to write the report. The scope identifies what you will do in the report (e.g., identify issues, analyze those issues, and develop and evaluate alternatives). The introduction should never include a salutation, such as “Dear Sir” or “Dear Madam.” The introduction is not a brief summary of the case. Your supervisor or the person who hired you as a consultant is already familiar with the facts. However, a sentence or two in the introduction about the company’s current situation helps to explain the purpose of the report. As discussed in Section 4.1, case facts should be included in the report only to make a specific point. Therefore, do not spend time and words reiterating case facts in the introduction. Depending on the style preferred by your instructor and the complexity of the case, identifying the issues can form a key part of the introduction to your report. Usually, though, you will identify the issues in a subsequent section that focuses exclusively on identifying the issues. The latter approach generally is favoured because it more clearly distinguishes the issues for both you and your reader. In general, the introduction should not exceed a half page in length (125 words). If you identify the issues in your introduction, the introduction could be as long as a page (250 words). 7.9. Body of the Report The body of the report is typically divided into sections for issues, analysis of issues, alternatives, and recommendations. Especially for the analysis and alternatives sections, use subheadings for each issue and each alternative to make your report more readable and user-friendly. Subheadings also help you to organize your thoughts (see Section 7.5). Similarly, use paragraphs to separate each group of related thoughts from the next. Use of many short paragraphs will also make your report more readable. If your report includes figures or appendices, make specific reference to the figure or appendix at the appropriate place in the body of your report. This reference directs the reader to link the content in the body with the supplementary information. 7.10. Conclusion The final section in a written report is the conclusion. This section should provide a very brief (no more than a quarter to a half page) summary of the main findings of the report. The conclusion should also convince the reader that it would be beneficial for the organization to adopt the recommendations in the report. The conclusion should follow strictly from your analysis and avoid introducing any new material, since you will have already clearly built your argument in the analysis section of the report.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
22
Page 9 9B18M056 7.11. Figures and Appendices 7.11.1. The Purpose of Figures and Appendices Figures or appendices are used to capture some of your analysis or recommendations in a form more succinct than prose. Quantitative analysis is usually best presented in figures and appendices. Some forms of qualitative analysis also lend themselves to figures or appendices, such as a complete Porter’s five forces analysis or a resource gap analysis. Appendices are also used to present external research, organizational charts, and other supplementary information. There is no value in reproducing exhibits from the case itself in your report. Instead, refer directly to exhibits contained in the case, using a phrase such as “Exhibit 3 in the materials provided to us” or “case Exhibit 3.” Depending on the size of your report, some items should be incorporated within the body of the report while others should be appended to the back. It is conventional to include relatively short charts or tables or small graphs within the report and to attach longer items to the back of the report. Depending on your instructor’s preferences, small charts, tables, and graphs within the body of a report are referred to as figures, illustrations, or exhibits; exhibits sometimes refer to material appended to the end of a report, but, more commonly, that content is referred to as appendices. Whatever terminology you use, be consistent throughout the report. Each appendix is usually considered to be a stand-alone item that the reader can refer to both during and after reading the body of the report. To help draw the reader into the appendix and to make key information readily accessible in the body of the report, figures can be used to summarize key items from an appendix. For example, a figure can summarize three or four key financial ratios that are provided as part of a comprehensive ratio analysis shown in the appendix. To use figures and appendices effectively, limit their number to suit the size of your report. Also, be sure to refer to material from these items in the body of the report. 7.11.2. Quantitative Figures and Appendices Quantitative figures and appendices should provide a level of detail that is suited to the audience and allows the information to be presented in a readable font (at least 10 points, and depending on the font, preferably 11 or 12 points). For example, a board of directors will not want to review dozens of pages of detailed spreadsheet analysis. The board will expect the report writer to make judicious choices about the number of scenarios and level of detail to present. On an income statement, it is generally sufficient to display four or five expense categories rather than list the 15 or 20 individual expense items, and to state items in thousands or millions of dollars to reduce the number of digits displayed. It will also likely be sufficient to display the most likely, worst-case, and best-case scenarios. However, your supervisor or your instructor might want to see more analysis and a greater level of detail than a board member would require. All quantitative appendices should include a clear trail of assumptions, calculations, and explanations. For example, if your pro forma (forecast) income statement projects a growth in sales of five per cent for each of the next two years, clearly state this assumption and explain why this assumption was used (e.g., it represents the average growth rate for the past three years, or it is the projected increase in demand for the industry). For financial statements, the clearest trail is established when you provide an additional column for assumptions. Alternatively, beside each relevant line item, insert a superscript reference number that corresponds to a numbered note at the bottom of the financial statement.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
23
Page 10 9B18M056 7.11.3. Numbering of Figures and Appendices Sequentially number (or letter) all figures and appendices to correspond with the order in which they are discussed in the report. Label figures and title appendices to show at a glance what they contain; e.g., “Figure 1: Growth of Market Share, 1995 to 2015” or “Appendix 1: Porter’s Five Forces Analysis.” Figures and appendices should also be professional in appearance and format. Word processing software offers a wide range of colours and designs for charts, graphs, tables, and illustrations; however, unless you are providing the printed copy of the report (and thus have control over the final appearance), avoid the use of colour and keep illustrations simple. Also avoid the use of special effects such as drop shadows and special, complex, or elaborate shapes. Use shading (i.e., fill) in tables and illustrations only when absolutely necessary. The width of borders should be between 0.5 and 1.0 points in size. When designing tables, use only the borders you need to separate rows and columns. Too many lines, vertical or horizontal, add clutter to content and often make a table more difficult rather than easier to read. Figures and appendices are typically not included as part of the prescribed word count; however, your instructor might prescribe a separate limit on the number of figures and appendices. 8. WRITING STYLE, GRAMMAR, AND SPELLING 8.1. Basic Criteria of a Well-Written Report Your report should be well organized and well written. Careful attention to grammar—including sentence structure, paragraph structure, word usage, and punctuation—and spelling is essential. Your instructor might evaluate this aspect of your report separately or might show an explicit deduction from your overall grade in an effort to emphasize the cost of poor organization, faulty grammar, and misspellings. A poorly written report will have a negative impact on the reader that will adversely colour the reader’s view of the entire report. For your work to be perceived as professional, competent, and credible, your report needs to be well written. While spell-checkers and other electronic tools are of some value, they do not detect all types of errors (e.g., using “weather” instead of “whether”). It is also helpful to have someone else review your report for readability, clarity, spelling, and grammar. However, a review by another person does not replace the need to take the time and effort to carefully review your own work. Plan your time to allow at least a day or two between finishing your first draft and editing your report; otherwise, you might simply see what you saw the last time. It can also be helpful to read your report aloud or to read the paragraphs in reverse order from the end to the beginning. Finally, you should print and proofread your report. Your eyes and brain have the ability to notice things in a printed copy that are not seen on a screen. Prepare and proofread figures and appendices with the same care as applied to the body of the report. 8.2. Use of “I Think” and “I Believe” Avoid the tendency to preface conclusions and recommendations with phrases such as “I think,” “I believe,” or “We are of the opinion that.” The entire report represents your thoughts, beliefs, and opinions. It should be clear from the context whether you are citing facts or drawing a conclusion. While qualifying expressions can be used occasionally for special emphasis, their overuse leads to a report that appears tentative.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
24
Page 11 9B18M056 8.3. Formal versus Informal Reports When deciding on the tone of a report, consider the audience, the customary style within an organization, and the preferences of your supervisor or instructor. A report to a board of directors of a large corporation should use more formal language than a report to a small business owner. For example, it is more formal to write, “The report recommends that the organization [do X]” than to write, “I recommend that the organization [do Y].” If your report is directed to your supervisor or a client who is the owner of a small business, use of “I” or “we” is generally acceptable. As well, when addressing the recipient of the report, it is generally acceptable to use “you.” However, if the sentence refers to the recipient’s department or organization as a whole, use “the department” or “the company” or a shortened version of the company name. Opinions differ on whether it is acceptable in a report to use the passive voice (e.g., “It is recommended that”). In general, the active voice (e.g., “We recommend that”) is more compelling than the passive voice, and it demonstrates more confidence in, and ownership of, the recommendations. The active voice is also easier to read and generally uses fewer words. 9. PROFESSIONAL LANGUAGE, TONE, AND TACT 9.1. Use Professional Language The report should use professional language that is both concise and clear. Say something well the first time, and you will eliminate repetition and make room for new content. Keep your sentences short. Ensure that each word communicates the meaning you intend. Avoid flowery language. Remember that you are writing a business report, not an English essay. Also avoid trite expressions, colloquialisms, and slang. For example, use the word “receive” instead of “get;” use “will earn a profit” instead of “will make money;” use “high risk” rather than “big gamble.” Use words such as never, always, and very sparingly to avoid exaggeration and generalization. Such words are often unnecessarily inflammatory. As such, they might cause the reader to become defensive, and they might reduce your credibility. Avoid the use of technical language that your reader will not understand unless you have explained such terms. This guideline also applies to use of theories and models. While you are required to use course concepts in an academic case report (in your role as a student), you are also required to apply them in a way that makes them understandable and relevant to the report recipient (in your assigned role as a subordinate or a consultant). For instance, in an organizational behaviour case, you might choose to apply expectancy theory to explain why employees are not motivated. It is sufficient to state (with appropriate support) that employees do not believe that behaviours being asked of them will lead to customer satisfaction, or they do not believe that their supervisors will reward improvements to customer satisfaction, or they do not value the organization’s rewards. Simple, clear conclusions are preferable to a theoretical outline of what expectancy theory is and what it says about motivation. Also avoid the use of jargon or “business speak.” Jargon obscures your intended meaning and creates the potential for misunderstanding. Jargon also changes with generations; using jargon that might be understood by a young generation of business people might leave an older businessperson frustrated and feeling excluded.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
25
Page 12 9B18M056 Similarly, jargon does not usually translate well or consistently across languages, and is potentially confusing, excluding, or even offending to an international reader. Instead of “reaching out” or “touching base,” “contact” the person. Rather than pursuing “buy-in,” “seek agreement” on a course of action. Use big words only to the extent that you can do so effectively. In general, clarity and conciseness are more important than trying to impress your supervisor, client, or instructor. 9.2. Use Constructive Language Since a case report culminates in recommended alternatives for action, the goal is to be persuasive. Throughout the report, be positive, constructive, tactful, and considerate of the reader’s feelings, so as not to alienate the reader. Although one important facet of the report is to identify issues, care should be taken to avoid overly negative language, especially when the report is addressed to your superiors. For example, rather than stating that “management has failed to recognize that the current strategy is no longer effective,” state that, “due to significant changes in the external environment, the company has reached the stage where a new strategy is required to ensure its ongoing success.” Avoid accusatory statements such as “poor management” or “management has neglected to.” It is more appropriate to state, for example, that “there were insufficient controls in place” rather than “there was a lack of internal controls” or “management failed to establish internal controls.” Using appropriate language and tone will make the reader more receptive to what you say in the report about various issues. It will also make your analysis and recommendations more credible. 9.3. Use Must and Need Sparingly Also related to tone and tact is the use of the word must. In general, avoid telling the recipient of the report what the person must do. Overuse of that word reflects a lack of distinction between essential actions and suggested recommendations. As well, must has the connotation of ordering or commanding action. Your reader will react more positively, just as you would, to phrases such as “I recommend,” “It would be beneficial to,” or “The company should,” rather than being told what the reader must do. It is also preferable to use wording such as “Your department should” rather than “Your department needs to.” Reserve need to and needs to for actions that are absolutely essential to emphasize their critical nature. Use “I recommend” for actions that would be prudent or wise. 10. CASE REPORTS WRITTEN BY TEAMS 10.1. Team Meetings If you are assigned to complete your case as part of a team, plan to meet at least twice and perhaps three times to discuss the entire case. Set an agenda for each meeting and hold each other accountable for being prepared. For example, the goals of the first meeting might be to identify the issues and begin to analyze them. Prior to that meeting, each member of the team should read the case at least once, preferably twice, and make some preliminary notes.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
26
Page 13 9B18M056 The goals of the second meeting might be to develop and evaluate alternative solutions and to draft recommendations. Prior to that meeting, individual team members might be assigned the task of completing more in-depth analysis (e.g., calculating financial ratios, comparing the firm’s product offering and value proposition to those of key competitors). Some team members might be assigned the role of capturing what was accomplished at the previous meeting by drafting one or more sections of the report. The agenda for the final meeting might be to review the draft for consistency, clarity, grammar, and so on, and to finalize the report. 10.2. Brainstorming One of the key benefits of working in teams is the ability to generate more ideas and to benefit from each another’s ideas. For this advantage to be achieved, it is helpful to use a technique called “brainstorming” when identifying the issues and, especially, when generating alternative solutions. Brainstorming attempts to come up with as many ideas as possible by holding off on any evaluation or criticism of the ideas until a later time. 10.3. The Task of Writing the Report The duty of writing the report can be split or rotated among team members, but the final product should represent a team effort and not simply be a piecing together of several individually-crafted sections. The latter approach usually leads to inconsistencies such as analyzing issues that were not mentioned in the identification of issues, failing to solve issues that were analyzed, or not using much of the analysis contained in appendices. Some editing of a written draft should occur at a subsequent meeting or by means of circulating the draft to all members of the team. The final report is the responsibility of the whole team, not the individuals who are assigned all or part of the writing task. Your instructor might require all members of the team to sign off on the report to acknowledge this shared responsibility. 11. CASE ANALYSIS AND ACADEMIC INTEGRITY Because case analysis is complex, it may often seem helpful to discuss the case informally or formally with other students before participating in a class discussion, writing a report, or making a presentation. Managers and consultants often discuss problems with other people, within the constraints allowed by confidentiality. Therefore, your instructor may allow, encourage, or even require such discussion. However, to ensure academic integrity and to avoid plagiarism, unless your instructor has specifically indicated that some degree of discussion is permissible, you should consult with your instructor before engaging in any collaboration. This restriction on outside discussion is especially necessary when preparing reports and presentations. It may also seem helpful to search the Internet for teaching notes for cases or for case reports or slide presentations prepared by other students. Academic integrity requires that you refrain from using such resources, in full or in part. Any attempt to use the work of others and to pass it off as your own is plagiarism. If the instructor is suspicious that plagiarism might be involved, you may be asked to upload a copy of your case report through Turnitin.com. While using the work of others may appear to provide a shortcut to a good grade, the quality of online sources and the work of other students is often suspect, at best. Most importantly, you deprive yourself of the learning opportunities the case method offers.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
27
4.
9B18A046
BRAND W: STRATEGIZING FOR OMNI-CHANNEL RETAIL1
Jones Mathew, Banasree Dey, and Sandeep Puri wrote this case solely to provide material for class discussion. The authors do not
intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com.
Copyright © 2018, Ivey Business School Foundation Version: 2018-07-16
In March 2018, the India Fashion Forum recognized the brand W as the most admired fashion brand of the year.2 The W brand was owned by New Delhi–based TCNS Clothing Company Limited (TCNS). In 2017, TCNS became the first home-grown Indian apparel company to earn ₹311.5 billion.4 The company achieved this with its four brands: Weve, W, Wishful, and Aurelia. This achievement was driven to a large extent by the phenomenal growth of TCNS’s main brand, W, in a fashion apparel retail market worth ₹2,970 billion.5 Inspired by this success, W had been expanding its retail presence in the country, and had ambitions of opening 100 stores every year across India. The company had been building its online presence through a company website and online marketplaces.6 Targeting modern Indian women with a need for contemporary designs that combined Western and Indian styles, the brand had clearly captured the interest of many. However, W operated in a changing retail environment, where both retail giants and online brands had been struggling with their returns. The company realized that it would not suffice to simply add channels, and it recognized omni-channel retailing as the way forward.7 Omni-channel retail was a business strategy that enhanced customer experience, business performance, retail sales, and loyalty. It aimed to integrate all channels of a business to make it possible for both customers and salespeople to enjoy an optimally functional range of sales capabilities.8 However, Anant Daga, chief executive officer (CEO) of TCNS, was aware that adopting an omni-channel approach came with its share of challenges like price discounts.9 He needed to find a way to seamlessly manage customer interactions across multiple touchpoints, manage a complex supply chain, and achieve product and messaging consistency across channels. Further, he had to determine how an offline-dominant brand such as W should traverse the journey from traditional to multi- channel to omni-channel retailing. In the competitive branded women’s apparel market, could W sustain its foothold? Would an omni-channel strategy help W build a strong base of loyal customers? COMPANY BACKGROUND In 2002, the Pasricha brothers Arvinder Singh and Onkar Singh, experts in exports, saw an opportunity in the domestic Indian apparel market. “Two developments got us to think inwards,” said Onkar. “First, India opened up its economy, and second, we started facing export trade blocks. That’s why we took a strategic decision to enter the domestic market.”10 TCNS, which was named after the brothers’ grandfather, Trilok Chand, and father, Narender Singh, launched the W brand in a middle-class market in Delhi with an impressive 278- square-metre (3,000-square-foot) store that exclusively showcased Indian ethnic wear.11 They closed it down after a few months and noted that the store had intimidated Indian women shoppers, who felt that such a big
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
29
Page 2 9B18A046
store in the heart of a middle-class market must be offering high-priced products. “Women would look at the store from outside, conclude that it was pricey, and walk away without coming in,” Onkar noted.12 The Pasricha brothers were fast learners, and they took a quick decision: they shut the large store and opened a smaller one in the same market, and business took off. They had just mastered an important facet of the Indian shopper’s psychology. Starting with just 30 stores in 2008,13 W had a retail presence of 250 stores by 2017,14 and sales for W and Aurelia combined rose from ₹3,590 million15 in 2014 to a projected ₹10,000 million in 2017.16 In 2017, the company had four brands in its portfolio (see Exhibit 1). According to retail consultant Harminder Sahni, TCNS owed its success “to the design, fit, and affordability of its outfits. . . . It created a new contemporary ethnic-wear category. . . . The initial struggle it faced was due to it being a new concept, but once this category took off, the company was one of the first to gain from it.”17 Early Success W had been able to carve out a place for itself since its founding in 2002 based on two main factors. Firstly, it focused on profitability rather than vanity. The owners learned very early on, as they went about building the brand into one that was familiar among India’s women consumers, that large and glamorous retail touchpoints created a misplaced perception of a brand that was “intimidating” or “too pricey.” This was their experience when they launched a large retail store in New Delhi’s Lajpat Nagar, where bargain- hunting middle-income Delhi women shopped.18 To their credit, they quickly retraced their steps, closing this store and opening stores in more familiar sizes of 55–93 square metres (600–1,000 square feet).19 Secondly, innovative styling was a key characteristic of the brand. Indian women were increasingly venturing into formal workspaces. By 2012, 33 per cent of Indian working-age women were working outside their homes,20 and women comprised 16.2 per cent of all urban workers in 2015–16.21 For W, this was a large enough market. No other major brand offered competitive products that combined pricing, approach, and targeted clientele.22 This growing segment of working urban and semi-urban women who sought to wear a fusion of fashionable and traditional Indian clothing formed a lucrative market.23
Repositioning In keeping with changing fashion trends, W changed its brand positioning to emphasize fashion-oriented fusion wear for the contemporary Indian woman. In 2007, roughly five years after it launched, W understood that its target audience of contemporary Indian women needed more than the ethnic wear they were being presented with. In response to changing consumer preferences, W came up with a contemporary product mix.24 At that point, in 2007, W stopped being an ethnic brand and was reborn as a fusion-wear brand. As Daga stated,
Over the years, we have realized that the traditional definition of ethnic wear is undergoing a sea- change. And this compartmentalization of fashion—on the basis of ethnic or western wear—is only limited to the brand’s point of view. Consumers have stopped looking at them under two different lens.25
By 2017, W was clearly focused on transitioning and occupying a predominant lifestyle positioning by adding multiple categories as part of this long-term goal26. Daga said,
In the past, we have successfully added jewellery as a category under the W brand. We are now adding bags and we might very soon come up with footwear. Looking at the pace at which the
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
30
Page 3 9B18A046
brand is growing—both geographically and monetarily—it won’t be long before it turns into a complete lifestyle brand, of course keeping our core competencies intact.27
The repositioning of W from a fusion-wear brand into a lifestyle brand appeared to be the next logical step.
W Brand Ethos
The brand identity of W reflected the image of a modern Indian woman. In keeping with the changed aspirations of this new-age woman, brand W focused on constant innovation. It offered a complete wardrobe solution, which catered to the different moods of the target consumer. In order to fulfill the promise of being an exciting fusion-wear brand, it introduced five fresh collections every year. This filled a significant void in the mix-and-match/fusion-wear segment, and W carved out a unique identity. The brand focused on fashionable and contemporary silhouettes and broke the standard mould. It also borrowed heavily; it was inspired not only by Indian ethnic designs but also by Turkish and Nordic design palettes.28 The former CEO of W, Vijay Mishra, pointed out that the collection combined both Indian and Western designs to create a unique look for the contemporary Indian woman. Through a signature design language, W had achieved fashion leadership in the segment. These innovative ready-to-wear products offered the twin benefits of fashion and functionality.29 In this first attempt to reinvent Indian fashion, the traditional salwar-kameez was transformed into a chic, urbane, and comfortable product.30 The brand was strategically targeted to Indian women who adopted fusion wear in a big way, but W realized that women increasingly experimented with fusion wear, and the correct fit and size had been a problem. To address this issue, the brand added a seventh size to the existing six-point sizing scale, for a better and smarter fit. The company measured 4,000 women across India and arrived at seven sizes, which fit 96 per cent of W’s customers. With an advanced technique and better understanding of the relation between body shape and size, the fits at W became better.31 As Arvinder Pasricha said, “Our fit is our strength.”32 Earlier, most women’s apparel brands had only three sizes—small, medium, and large—but W introduced an extra small, a size between medium and large, and also a bigger size. According to Daga, W was “one of the few brands worldwide to have conducted an anthropometric study to arrive at the perfect fit for the Indian women body type.”33 With the brand’s focus on unmet customer needs, it also added a maternity line to its range in 2013.34
W Consumer Persona W was targeted to the new-age woman and the values of modernity, individuality, and fashion awareness that she represented. The brand was designed to serve women looking for innovatively styled, ready-to- wear, functional, and affordable clothes. The W woman was visualized to be spirited, confident, innovative and contemporary—someone who exuded inner beauty in her personality and action.35 By 2016, the age profile of a W woman had changed from 27–35 to 25–40, as younger women started working and an increasing number of older women became conscious of how their attire expressed their personality. The W consumer did not believe in strictly compartmentalizing ethnic wear and Western wear. She had been seeking out contemporary Indian wear that cut across all product segments.36 W, along with a clutch of other apparel companies, was catering to changing trends by investing in product innovation and distribution reach. Indian wear started gaining acceptance among younger consumers as W rightly identified itself as fusion clothing—a crossover style between traditional and modern wear—instead of pure ethnic wear, which was usually reserved for special events or festive occasions. The W woman was “rooted F
or u
se o
nl y
in th
e co
ur se
C on
te m
po ra
ry Is
su es
in B
us in
es s:
A C
as e
a t Y
or kv
ill e
U ni
ve rs
ity ta
ug ht
b y
V ar
io us
P ro
fe ss
or s
fr om
O ct
ob er
1 1,
2 01
9 to
O ct
ob er
1 1,
2 02
2.
U se
o ut
si de
th es
e pa
ra m
et er
s is
a c
op yr
ig ht
v io
la tio
n.
31
Page 4 9B18A046
at home and taking on the world with panache, playing myriad roles” effortlessly. W stepped in to fulfill the needs of this woman. 37 STRATEGIES FOR GROWTH
Retail Expansion Over the years, TCNS had expanded its retail footprint aggressively. W spread steadily, from 30 to 250 stores in nine years. TCNS’s revenue had grown at a compounded annual growth rate (CAGR) of 45 per cent. “Our profit has increased by ten times in five years, and our return on capital employed will be in the range of 40– 50 per cent this financial year,” declared Daga in an interview in 2015.38 The growing popularity of online shopping had helped these brands reach out to customers in smaller cities, especially Tier 2 and Tier 3 cities.39 Online retailing now accounted for about 10 per cent of the company’s sales.40 W’s growth plans included achieving a pan-Indian presence in retail points of sale through both premium and budget brands and across formats such as exclusive brand outlets, franchise stores, and shop-in-shops. Over the years, W had been “on a high growth trajectory, registering a growth of more than 50 per cent year on year.”41 In 2015, the brand announced that it aimed to double its turnover to 10 billion by 2017 on the back of new stores, innovative product offerings and increased online sales. “We are looking at 50 per cent increase in our top-line growth and ₹7.5 billion sales in the current fiscal [2015]),” declared Daga.42 TCNS’s consumer sales in 2016 reached more than $120 million, and its year-on-year growth rate was 70 per cent.43 Apart from organic growth, the brand saw significant avenues for expansion through the possible introduction of additional womenswear brands and complementary offerings and through expansion into international markets. U.S.-based private equity investor TA Associates, which had experience in consumer sectors and fashion verticals, invested $140 million in the company in 2016, and TCNS firmly believed the partnership would add value across all strategy and operations spheres.44 In March 2018, brand W had displayed its innovative approach by launching a new line of Harit Khadi products that were both eco- friendly and scalable. Produced using solar-powered charkhas (spinning wheels) and looms, this line was designed to appeal to the sensibilities of modern Indian women.45
Global Foray
In 2011, TCNS began to consider expanding into foreign markets based on parameters such as the overseas markets’ prospects, magnitude, seasonality, and partnership models. The firm decided to venture into the global arena in 2012.46 It focused on the Indian diaspora in the United Kingdom, the Middle East, and Southeast Asian countries including Singapore, Mauritius, and Sri Lanka.47 The company’s decision to go global was aided by the interest non-resident Indians showed in the firm’s website. Daga confirmed that about 10 per cent of the orders on its site Shopforw.com (one of three websites) was from international locations.48 In 2014, the Indian ethnic fashion market was estimated at more than US$2 billion globally. 49 The large Indian diaspora was an important target market for W. This market did not have much access to quality Indian attire. The brick-and-mortar retailer Fabindia had a presence in about five countries, and only a handful of online sites, such as Utsav Fashion, CBazaar, and IndianRoots, catered to this segment. Two reasons for W’s acceptance among members of the Indian diaspora were the inherently international feel of the W range and the absence of competing relevant brands. 50 With the entry into the Indian market of highly aspirational global fashion brands such as Zara, Forever 21, Zegna, and Hermes, there was a clear and present danger that the domestic market could become extremely competitive for brands like W. 51
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
32
Page 5 9B18A046
The global market entry strategy that W had adopted with respect to retail had always been to run a pilot store for about six months, learn from the challenges, and then pursue aggressive expansion. The ultimate objective of the company’s Go Global strategy was to target all leading areas of the Indian diaspora.52 Its experience so far had been encouraging, with from one to five stores going up in a 12- to 18-month period in each of the countries W had entered.53 W’S ONLINE PRESENCE
The growing popularity of online shopping had helped TCNS’s brands reach customers in smaller cities, especially Tier 2 and Tier 3 cities. Online retailing accounted for about 10 per cent of its sales in 2016.54 By 2014, online sales had grown to 4 per cent of W brand’s overall sales in just two years. According to retail advisory firm Technopak Advisors, apparel and lifestyle, which contributed 25 per cent of all online sales, was expected to increase this share to 30 per cent over the next five years, and online retail sales were estimated to grow up to ₹2,300 billion in 2019.55 Sales from W’s own website were insignificant in 2014, and the company was attempting to rebuild this. “We are in the process of rebuilding it. Reference points have changed in three years when we launched the website,” Daga said in an interview to Press Trust of India in October 2014. “We have seen good traction in the online space. It (i.e., the website) will also drive brand image.”56 TCNS was targeting 5 per cent sales from its website in three years’ time.57 When asked why the company was looking at overseas markets, Daga stated that “the W range has a very international feel. There is a huge demand for our products from the Indian diaspora. It will give more growth in future. In fact, 15 per cent of orders on our in-house websites come from international customers.”58 From 2002 to 2017, W had been an offline-dominant brand. Its focus had predominantly been on traditional media, and it had had limited online interactions with its target customer base. It had been operating at the lower, affordable end of the price spectrum, with a limited foray into the premium segment and no presence in the luxury segment.59
APPAREL RETAIL IN INDIA Apparel brands operating in India could be broadly divided into four categories: offline-dominant brands, purely e-commerce brands, e-commerce–dominant brands, and hybrid-channel brands (see Exhibit 2). Each category had its own channel mix, promotions mix, and price segment, and both new and established players fought for a large and profitable market in each category.
The Indian retail market was worth US$641 billion in 2016, and it was expected to reach US$1.57 trillion by 2026, growing at a CAGR of 10 per cent. The fashion apparel retail market, worth US$ 46 billion in 2016, was expected to grow at a CAGR of 9.7 per cent to reach US$115 billion by 2026.60 The Indian e- commerce market was expected to grow to US$188 billion by 2025 based on smartphone penetration and 4G networks.61 By 2020 the digitally influenced62 branded apparel market was expected to reach US$30 billion—equivalent to 60 per cent of the total branded apparel market of US$50 billion.63 The Indian apparel market consisted of three categories: men’s wear (41 per cent), womenswear (38 per cent), and children’s wear (21 per cent). By 2026, the market share of womenswear was expected to equal that of men’s wear, at 39 per cent. With the increasing penetration of smartphones, there was already significant demand from Tier 2 and Tier 3 cities. 64 Since late 2016, in the context of macroeconomic indicators such as slow gross domestic product growth rate, double-digit inflation, dampened investment sentiment, and falling job creation, Indian fashion apparel consumers were aggressively trading downwards on price points and purchased goods categories. Apparel
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
33
Page 6 9B18A046
brands had to deal with increased heterogeneity in tastes, preferences, and choices and with a desire to buy from fresh stocks.65 On a positive note, the branded women’s apparel market had seen growth in revenues due to changed consumer preferences for fashionable, ready-to-wear garments. This growth was driven by players such as TCNS, BIBA, House of Anita Dongre (AND) and Global Desi, and Ritu Kumar.66
EVOLVING INDIAN CONSUMERS
Triggered by changes in lifestyle and technology, consumers in India had become more demanding and value conscious.67 According to a 2017 Boston Consulting Group study, several factors had contributed to changes in the buying behaviour of Indian consumers: these included greater urbanization, better salaries, more women in the workforce, and a younger population that focused more on aspirations, lifestyle considerations, and the need to belong—rather than on functional necessities—when making consumption decisions, especially in categories such as consumer durables and apparel.68 Rapid Internet penetration across the country and higher e-commerce adoption had led to a surge in online shopping.69 Digitally connected consumers who were open to new experiences had increasingly compelled retailers to engage with them at multiple touchpoints during their decision-making journeys (see Exhibit 3). According to a report by A.T. Kearney, retailers were moving toward omni-channel retailing strategies to provide seamless shopping experiences to their customers, from discovering needs to post-purchase service. Brands viewed this online–offline synergy as vital to achieving a better customer experience. They used a variety of digital tools to enable personalization at each stage—for example, customized promotions during the need-discovery stage. 70
THE WAY AHEAD
Loyalty in Retail TCNS had been in business for 15 years, so acquiring customers was no longer as important for the company as retaining them. Retaining customers offered the dual benefits of lower costs and higher returns (see Exhibit 4). To retain customers, some form of engagement and benefits were essential. However, W had not been proactive enough to create a loyalty program. Customers who liked the brand enquired about loyalty programs and were disappointed by the negative response. It was common knowledge among retailers that the probability of converting a new customer to a brand was around 5–20 per cent, whereas the probability of converting an existing customer was 60–70 per cent.71 However, Daga stated,
I think, there is hardly any well-entrenched ethnic wear brand in the market. If you talk about brands, then there are just five or six, rest are just small labels who are either channel specific or customer specific and most of them are discounted and copycats. Moreover, competition, if any, is only for those [brands] who play around pricing and don’t have any distinct product to offer. We at TCNS have always differentiated between the pricing, approach, and clientele of our product which has helped us to grow in the market.72
Daga felt strongly in making W what Rishi Navani, managing director of Matrix Partners India, called a “product design-led” approach and therefore did not want to let its strategy be one of discounts. This strategy ended up not catering to W’s loyal Indian customers, despite their deep interest in the brand. Retail employees of W also felt the need for a loyalty program; and customers wanted a long-term relationship with W, but W had not responded yet. 73
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
34
Page 7 9B18A046
In general, enrolment in loyalty programs had been rising, but engagement rates had primarily remained flat.74 This presented a tremendous opportunity for the company. Today’s hyper-informed consumers expected personalized and shared interactions through a combination of digital and human experiences. Loyalty programs had to achieve increased profits by encouraging more frequent customer visits and increased customer spending.75 W retailed mainly through traditional retail channels, and this needed to change. A survey report by Ernst & Young (EY), reiterating the poor effects of loyalty programs, indicated that only 27 per cent of retailers were confident about the success of loyalty programs and only about 5 per cent believed that their customers were loyal.76 Patrick Moriarty, executive director of EY, said, “legacy methods of creating and maintaining brand loyalty are failing. Many retailers are capturing data, but struggling to generate and activate insights in ways that help them stay relevant.”77 Given this scenario, loyalty in retail would be only an illusion without efforts to truly engage with consumers at an emotional level. In fact, a report on Indian consumers found that a strong emotional engagement with consumers could build loyalty and enable retailers to increase their annual revenues by 5 per cent. This reinforced the insights of an earlier study that suggested emotionally connected consumers were even more valuable than satisfied consumers.78 According to Moriarty, “driving personalized offers, capturing real-time insights, understanding individualized customer needs and maintaining their trust are all keys to success.”79 Vineet Ahuja, the managing director of Accenture India, made a similar statement: “New languages of loyalty have emerged, driven by brands experimenting with creative digital experiences, which have changed the dynamics of customer loyalty today.” 80As an apparel retailer aiming to consolidate its position in the competitive Indian womenswear landscape, W would most likely do well to map the customer decision journey, identify the emotional motivators of its target customers, and then use technology to weave its strategies around creating deeper emotional connections with its customers while providing a complete customer experience across multiple touchpoints in the journey. Omni-Channel Strategy An omni-channel strategy was “the synergistic management of the numerous available channels and customer touchpoints, in such a way that the customer experience across channels and the performance over channels is optimized.” To move to an omni-channel strategy, W would have to re-examine its segments, pricing strategy, and go-to-market channels and rework its promotional marketing outreach programs. 81 Going from an offline-dominant to an omni-channel strategy was likely to pose many challenges for W. First, there would be stiff competition from online aggregators and e-commerce platforms with private labels. Naturally, these aggregators pushed their labels over independent brands. Second, the hefty margins demanded by Indian e-commerce platforms in the apparel category ranged from 36 to 40 per cent, which could significantly erode profitability.82 Further, trust—the intangible glue that stuck all of e-commerce together—seemed to be deteriorating as increasing numbers of customers were facing quality and delivery problems. Globalization and a digital ecosystem had led to borderless inventories and brand choices, which companies in any field had to manage in their favour. Building brand loyalty was very difficult in the e- commerce arena, where customers moved on to “the next big thing” without any qualms. Incompatible or poorly integrated systems across a value delivery chain that had different independent channel partners— the manufacturer, the e-commerce platform, the payment gateway, and the logistics vendor—led to a poor customer experience. It was essential to carefully leverage a repository of consumer data to come up with customized content in the form of specific offers and focused advertisements.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
35
Page 8 9B18A046
For consumers in India, online shopping came with problems related to shipping, returns, lost products, and errors in calculating duties and taxes, which led to a poor experience. Retailers in the past had not been careful to avoid such issues, and retailers pursuing an omni-channel strategy needed to ensure that the brand experience for customers—the merchandise as well as promotions—was consistent across offline, website, and mobile channels. Being omni-channel also meant being omnipresent for the customer. A customer may have begun an interaction on the website, moved on to social media or mobile apps, and completed the transaction in the store. Brands needed to engage with customers at every point in this journey and make the experience totally seamless for them.83 However, having to negotiate a unique journey for each consumer presented several clear challenges to retailers. Would W be able to overcome these challenges and move to the next level?
Jones Mathew is a professor at Great Lakes Institute of Management, Gurgaon, India; Banasree Dey is an
assistant professor at Jaipuria Institute of Management, Noida, India; and Sandeep Puri is an associate
professor at the Asian Institute of Management, Philippines.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
36
Page 9 9B18A046
EXHIBIT 1: TCNS BRAND PORTFOLIO
Brand Description
Weve
Weve was TCNS’s budget ethnic womenswear segment offering, sold through Reliance
Retail stores in a shop-in-shop format. Weve products were priced between ₹250 and ₹495.
Over time, Weve was phased out, perceived as an obstacle in W becoming a preferred brand.
W This was the flagship brand under TCNS. W offered affordable fashion, ranging in price from ₹799 to ₹2,999. W, with its Indo-Western appeal, contributed 65 per cent of TCNS revenue.
Wishful
The Wishful collection was the premium range from TCNS, with price points between ₹2,999
and ₹7,999. Conceived and retailed as a private label within W stores, its strategy was to become an independent, standalone brand. Wishful contributed approximately 10 per cent of the overall turnover.
Aurelia Aurelia was TCNS’s entirely ethnic, affordable offering, in the price range of ₹599 to ₹3,299.
It accounted for 25 per cent of TCNS’s turnover.
Source: Compiled by the case authors based on data from Debdatta Das, “Women’s Wear Brand ‘W’ in Expansion Mode,”
Hindu Business Line, August 30, 2007, accessed October 10, 2017, w ww.thehindubusinessline.com/todays-paper/t p-
marketing/w omens-w ear-brand-w -on-expansion-mode/article1667854.ece; India Retailing Bureau, “TCNS to Make W a
Lifestyle Brand and Wishful Independent in Tw o Years,” Images Business of Fashion, February 7, 2017, accessed October 22, 2017, w ww.indiaretailing.com/2017/02/07/fashion/tcns-to-make-w -a-lifestyle-brand-and-w ishful-independent-in-tw o-
years/; “Experience New World of Pants and Palazzos w ith W’s,” Fibre2fashion, accessed October 15, 2017,
w ww.fibre2fashion.com/new s/garment-company-new s/new sdetails.aspx?new s_id=110379; Shabana Hussain, “TCNS
Clothing: An Ethnic Jew el”, Forbes India, September 17, 2015, accessed October 8, 2017,
w w w .forbesindia.com/article/hidden-gems/tcns-clothing-an-ethnic-jew el/41081/1.
EXHIBIT 2: RETAIL STRATEGIES OF APPAREL BRANDS IN INDIA
Brand Type Channel Mix Promotions Mix Price Segments Examples
Offline- Dominant Brands
Mainly offline; Limited online
Traditional media dominant; Limited digital media
Low end; Affordable; Premium; Luxury;
Designer
Biba, W, AND, Skult, Libas
Purely E-commerce Brands
Only online Digital media dominant; Limited traditional media
Low end; Affordable
Voonik, Varanga, All About You, Koovs
E-commerce- Dominant
Brands
Mainly online; Limited offline
Digital media dominant; Limited
traditional media
Low end; Affordable; Premium
The Vanca,
Hybrid-
Channel Brands
Balanced online
and offline
Digital media
marginally dominant; High share of traditional media
Affordable; Premium Fabindia, H&M,
Zara
Source: Authors’ conceptualization.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
37
Page 10 9B18A046
EXHIBIT 3: CONSUMER DECISION JOURNEY (CDJ) PROCESS IN RETAIL
Decision Step
Need Recognition
Information Search
Evaluation of Alternatives
Purchase Decision
Post Purchase
CDJ1 Online/Offline Browse online Online Shop online Delivery at home
CDJ2 Online/Offline Browse online Online/Offline Shop offline In-store delivery;
Delivery at home
CDJ3 Online/Offline Search offline Online/Offline Shop online Delivery at home; In- store delivery
CDJ4 Online/Offline Search offline Offline Shop offline In-store delivery
Source: Authors’ conceptualization.
EXHIBIT 4: COMPONENTS OF LOYALTY PROGRAMS AND RETURN ON INVESTMENT
Note: Loyalty Program Return = A + B + C – D – E – F.
Source: Adapted by the case authors from “Building Your Loyalty Program ROI,” Paytronix, accessed April 20, 2018,
https://w w w.yumpu.com/en/document/view /8690022/building-your- loyalty-program-roi-paytronix.
Program ROI (G)
Program Costs
Members Buying More
due to
Loyalty Program
(B)
Members Visiting Stores More
Frequently due to Loyalty Program
(C)
Non-Members Buying Value without Loyalty Program (A)
Marginal Costs
(D)
Reward
Costs (E)
Program
Costs (F)
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
38
Page 11 9B18A046
ENDNOTES
1 This case has been w ritten on the basis of published sources only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of TCNS Clothing or any of its employees. 2 India Retailing Bureau, “Outstanding Fashion Retail Brands Honoured at IMAGES Fashion Aw ards 2018,” Images Business
of Fashion, March 15, 2018, accessed March 22, 2018, w ww.indiaretailing.com/2018/03/15/fashion/outstanding-fashion-reta i l-
brands-honoured-images-fashion-aw ards-2018/. 3 ₹ = Indian rupee; all currency amounts are in ₹ unless otherw ise specif ied; US$1.00 = ₹65.20 on March 1, 2018. 4 Abid Hasan, “TCNS Clothing Crosses Revenue Target of Rs 1,000 Crore,” Business World, April 24, 2017, accessed December 5,
2017, http://businessw orld.in/article/TCNS-Clothing-Crosses-Revenue-Target-Of-Rs-1-000-Crore/24-04-2017-116926/. 5 Images Business of Fashion, “The Indian Fashion Apparel Market—2017 & Beyond,” Images Business of Fashion, October
15, 2017, accessed March 15, 2018, w ww.indiaretailing.com/2017/10/15/fashion/indian-fashion-apparel-market-201 6-
beyond/. 6 Ibid. 7 Nitin Chhabra, “Indian Brands Need to Up the Game in Omni-Channel,” ET Retail (blog), Economic Times, September 20, 2017,
accessed January 5, 2018, https://retail.economictimes.indiatimes.com/re-tales/indian-brands-need-to-up-the-game-in-omni-
channel/2611. 8 Brad Arsenault, “The Benefits of Omni-Channel Retail,” Fifth Quadrant, January 23, 2017, accessed January 7, 2018,
w w w .fifthquadrant.com.au/cx-spotlight-new s/the-benefits-of-omni-channel-retail. 9 Ibid. 10 Shabana Hussain, “TCNS Clothing: An Ethnic Jew el,” Forbes India, September 17, 2015, accessed October 8, 2017,
w w w .forbesindia.com/article/hidden-gems/tcns-clothing-an-ethnic-jew el/41081/1. 11 Ibid. 12 Ibid. 13 Ibid. 14 India Retailing Bureau, “TCNS to Make W a Lifestyle Brand and Wishful Independent in Tw o Years,” Images Business of
Fashion, February 7, 2017, accessed October 22, 2017, w ww.indiaretailing.com/2017/02/07/fashion/tcns-to-make-w -a-
lifestyle-brand-and-w ishful-independent-in-tw o-years/. 15 Neha Tyagi and Sagar Malviya, “Women’s Ethnic Wear Tailors Grow th,” Economic Times, January 3, 2017, accessed
October 10, 2017,
http://economictimes.indiatimes.com/articleshow /56302798.cms?utm_source=contentofinterest&utm_medium=text&utm_ca
mpaign=cppst. 16 PTI, “TCNS Clothing Eyeing Rs 1,000 Crore Sales by Fiscal 2017,” Economic Times, October 4, 2015, accessed October
26, 2017, https://economictimes.indiatimes.com/industry/cons-products/garments-/-textiles/tcns-clothing-eyeing-rs-100 0-
crore-sales-by-fiscal-2017/articleshow /49214069.cms. 17 Hussain, op. cit. 18 Shabana Hussain, “TCNS Clothing: An Ethnic Jew el”, Forbes India, September 17, 2015, accessed October 8, 2017,
w ww.forbesindia.com/article/hidden-gems/tcns-clothing-an-ethnic-jew el/41081/1 19 Ibid. 20 Sonali Das, Sonali Jain-Chandra, Kalpana Kochhar, and Naresh Kumar, “Women Workers in India: Why so Few Among so
Many?,” IMF Working Paper, WP/15/55, Asia and Pacif ic Department, International Monetary Fund, March 2015, accessed
December 21, 2018, https://w w w .imf.org/external/pubs/ft/w p/2015/w p1555.pdf. 21 Catalyst, “Quick Take: Women in the Labour Force in India,” Catalyst, June 27, 2017, accessed October 15, 2017,
w w w .catalyst.org/know ledge/w omen-labour-force-india. 22 India Retailing Bureau, “TCNS to Make W a Lifestyle Brand and Wishful Independent in Tw o Years,” op. cit. 23 Bindu D. Menon, “Apparel Brand W Looks to Hook New Consumers w ith Perfect Fit,” Hindu Business Line, September 19,
2013, accessed July 13, 2018, w ww.thehindubusinessline.com/companies/apparel-brand-w -looks-to-hook-new -consumers-
w ith-perfect-f it/article5146533.ece. 24 Debdatta Das, “Women’s w ear brand “W” in Expansion Mode” Hindu Business lIne, August 30, 2007, accessed July 12,
2018, http://w ww.thehindubusinessline.com/todays-paper/tp-marketing/w omens-w ear-brand-w -on-expansion-
mode/article1667854.ece 25 Ibid. 26 Ibid. 27 Ibid. 28 “Celebrate Festival in W Style,” Fibre2Fashion, November 3, 2007, accessed December 12, 2017,
w w w .fibre2fashion.com/new s/fashion-company-new s/new sdetails.aspx?new s_id=43697. 29 Debdatta Das, “Women’s w ear brand “W” in Expansion Mode” Hindu Business lIne, A ugust 30, 2007, accessed July 12,
2018, http://w ww.thehindubusinessline.com/todays-paper/tp-marketing/w omens-w ear-brand-w -on-expansion-
mode/article1667854.ece 30 FashionUnited “W the w omen’s w ear brand to go global”, December 30, 2010, accessed July 14, 2018,
https://fashionunited.in/v1/apparel/w -the-w omens-w ear-brand-to-go-global/20101230874 31 “Experience New World of Pants and Palazzos w ith W,” Fibre2Fashion, April 24, 2012, accessed October 12, 2017,
w w w .fibre2fashion.com/new s/garment-company-new s/new sdetails.aspx?new s_id=110379.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
39
Page 12 9B18A046
32 Hussain, op. cit. 33 Bindu D. Menon, “Apparel Brand W Looks to Hook New Consumers w ith Perfect Fit,” Hindu Business Line, September 19,
2013, accessed October 26, 2017, w ww.thehindubusinessline.com/companies/apparel-brand-w -looks-to-hook-new -
consumers-w ith-perfect-f it/article5146533.ece. 34 Ibid. 35 “W Announces Hunt for Next Face of W,” Fibre2Fashion, August 23, 2007, accessed October 22, 2017,
w w w .fibre2fashion.com/new s/fashion-company-new s/new sdetails.aspx?new s_id=39775. 36 Ibid. 37 “Aurelia Opens 100th Store in India,” Fibre2Fashion, January 15, 2016, accessed November 10, 2017,
w w w.fibre2fashion.com/new s/fashion-store-openings/aurelia-opens-100th-store-in-india-176932-new sdetails.htm. 38 Hussain, op. cit. 39 Reserve Bank of India, “Annex 5: Details of Tier-Wise Classif ication of Centres Based on Population,” in Master Circular on
Branch Authorisation, Reserve Bank of India, July 1, 2011, accessed January 22, 2018,
https://rbidocs.rbi.org.in/rdocs/content/pdfs/100MCA0711_5.pdf; The Reserve Bank of India classif ied Indian cities into tiers based
on 2001 population census numbers: Tier 1 = 100,000 and above; Tier 2 = 50,000–99,999; and Tier 3 = 20,000–49,999. 40 Apparel Talk, “TCNS Clothing Plans to Open Outlets in Singapore, Sri Lanka,” Indian Apparel (blog), October 13, 2014,
accessed December 7, 2017, w w w .indian-apparel.com/blog/tcns-clothing-plans-to-open-outlets-in-singapore-sri-lanka/. 41 “Matrix Partners Invests Rs 600mn in TCNS Clothing,” Fibre2Fashion, October 7, 2011, accessed October 28, 2017,
w w w .fibre2fashion.com/new s/garment-company-new s/new sdetails.aspx?new s_id=104586. 42 PTI, op. cit. 43 Aparajita Choudhary, “Matrix Partners Exits Women’s Apparel Brand W,” Your Story, August 19, 2016, accessed October
8, 2017, https://yourstory.com/2016/08/matrix-partners-ta-associates/. 44 Ibid. 45 Press Trust of India, “W Launches New Line of Harit Khadi Products,” Business Standard, March 8, 2018, accessed March
20, 2018, w ww.business-standard.com/article/pti-stories/w -launches-new -line-of-harit-khadi-products-118030800866_1.ht ml. 46 “Women’s Wear Brand ‘W’ Planning Global Expansion,” Fibre2Fashion, January 3, 2011, accessed October 23, 2017,
w w w .fibre2fashion.com/new s/apparel-new s/new sdetails.aspx?new s_id=94474. 47 Apparel Talk, op. cit. 48 Radhika P. Nair, “W Owner TCNS Clothing Plans to Scale Up India Business; Getting Ready for Global Show in a Year,” Economic Times,
March 28, 2014, accessed October 25, 2017, https://economictimes.indiatimes.com/industry/cons-products/garments-/-textiles/w-ow ner-
tcns-clothing-plans-to-scale-up-india-business-getting-ready-for-global-show-in-a-year/articleshow/32839217.cms. 49 Ibid. 50 Ibid. 51 Shw eta Jain, “Indian Branded Apparel Retail: Promising But Not Big Enough?,” ET Retail (blog) Economic Times, August 10, 2016,
accessed October 26, 2017, http://retail.economictimes.indiatimes.com/re-tales/indian-branded-apparel-retail-promising-but-not-big-
enough/1709. 52 PTI, op. cit. 53 India Retailing Bureau, “TCNS to Make W a Lifestyle Brand and Wishful Independent in Tw o Years,” op. cit. 54 Tyagi and Malviya, op. cit. 55 Nair, op. cit. 56 Apparel Talk, “TCNS Clothing Plans to Open Outlets in Singapore, Sri Lanka,” Indian Apparel (blog), October 13, 2014,
accessed December 7, 2017, w ww.indian-apparel.com/blog/tcns-clothing-plans-to-open-outlets-in-singapore-sri-lanka/. 57 Ibid. 58 Ibid. 59 Ibid 60 Images Business of Fashion, “The Indian Fashion Apparel Market—2017 & Beyond,” Images Business of Fashion, October
15, 2017, accessed March 12, 2018, w ww.indiaretailing.com/2017/10/15/fashion/indian-fashion-apparel-market-201 6-
beyond/. 61 “Ecommerce Industry in India,” India Brand Equity Foundation, September 26, 2017, accessed October 10, 2017,
https://w w w .ibef.org/industry/ecommerce.aspx. 62 Digitally influenced buyers used the Internet during at least at one stage of the buying process. 63 Abheek Singhi, Nimisha Jain, Rohit Ramesh, Kanika Sanghi, and Samar Bajaj, Fashion Forward 2020, Boston Consulting
Group, March 22, 2017, accessed October 12, 2017, https://media-publications.bcg.com/BCG-Faceboo k-
FashionForw ard2020-Mar2017.pdf. 64 Ibid. 65 Deepti Govind, “Fashion Retailers May Trim End-Season Sales,” Livemint, March 25, 2017, accessed November 20, 2017,
w w w .livemint.com/Industry/QLUc5U5KhHYy9NZoKcpetM/Fashion-retailers-may-trim-endseason-sales.html. 66 Tyagi and Malviya, op. cit. 67 Sandeep Puri, Abhijeet Gaurav, and Rajat Agarw al, “Changing Contours of Online Retail,” Progressive Grocer, May 2015,
18–24. 68 Abheek Singhi, Nimisha Jain, and Kanika Sanghi, “The New Indian: The Many Facets of a Changing Consumer,” BCG,
March 20, 2017, accessed April 19, 2018, https://w ww.bcg.com/en-in/publications/2017/marketing-sales-globalization-new -
indian-changing-consumer.aspx.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
40
Page 13 9B18A046
69 Sachin Dave, “Online Spending in India is Taking Off: BCG,” ET Rise (blog), Economic Times, March 22, 2017, accessed
December 5, 2017,
https://economictimes.indiatimes.com/artic leshow /57781085.cms?utm_source=contentofinterest&utm_medium=text&utm_c
ampaign=cppst. 70 Abhishek Malhotra, Subhendu Roy, Sriram Ananthapadmanabhan, Neelesh Hundekari, Kaushik Sriram, and Shreshta
Venkataraman, Retail in the Era of the Connected Consumer, A.T. Kearney, 2016, accessed October 29, 2017,
https://www.atkearney.in/documents/4773014/7863364/Retail+in+the+Era+of+the+Connected+Customer+%281%29.pdf/d2f4b25e
-03c5-47cd-9976-8cd194dcddec. 71 Khalid Saleh, “Customer Acquisition Vs. Retention Costs – Statistics and Trends,” Invesp, accessed January 8, 2018
https://w w w .invespcro.com/blog/customer-acquisition-retention/. 72 India Retailing Bureau, “TCNS to Make W a Lifestyle Brand and Wishful Independent in Tw o Years,” op. cit. 73 Hussain, op. cit. 74 “Apparel Retailers Lag in Loyalty,” Apparel, May 22, 2017, accessed March 12, 2018, https://apparelmag.com/apparel-
retailers-lag-loyalty. 75 “Building Your Loyalty Program ROI,” Paytronix, accessed December 15, 2017,
https://w w w .paytronix.com/resources/building-your-loyalty-program-roi.aspx. 76 “Buy Loyalty? Build Loyalty?,” Ernst & Young Global Limited, accessed January 13, 2018,
w w w .ey.com/gl/en/industries/consumer-products/ey-how -can-retailers-drive-loyalty. 77 Varun Jain, “Only 27% Retail Leaders Confident about Positive Impact of Loyalty Programs: Report,” ET Retail (blog),
September 27, 2017, accessed November 20, 2017, https://retail.economictimes.indiatimes.com/new s/e-commerce/ e-
tailing/only-27-retail- leaders-confident-about-positive- impact-of-loyalty-programs-report/60855247. 78 “Buy Loyalty? Build Loyalty?,” op. cit. 79 Jain, op. cit. 80 ET Bureau, “Companies Wasting Billions on Customer Loyalty Programmes,” ET Retail (blog), February 15, 2017,
accessed November 15, 2017, https://retail.economictimes.indiatimes.com/new s/industry/companies-w asting-billions-on-
customer-loyalty-programmes/57167410. 81 Peter C. Verhoef, P.K. Kannan, and Jeffrey Inman, “From Multi-Channel Retailing to Omni-Channel Retailing: Introduction
to the Special Issue on Multi-Channel Retailing,” Journal of Retailing 91, no. 2: (2015): 174–181. 82 Prabha Raghavan, “Running an Apparel Business Online Just as Expensive as Running a Brick-and-Mortar Store,” Economic
Times, September 23, 2015, accessed January 7, 2018, https://economictimes.indiatimes.com/industry/services/retail/running-an-
apparel-business-online-just-as-expensive-as-running-a-brick-and-mortar-
store/articleshow /49053110.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst. 83 Varun Jain, “Online Shopping Still a Challenge for Indians: Survey,” ET Retail (blog), Economic Times, November 20, 2017,
accessed December 12, 2017, https://retail.economictimes.indiatimes.com/new s/e-commerce/e-tailing/online-shopping-sti l l-
a-challenge-for-indians-survey/61721780.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
41
5.
9B16E019
WESTJET: A NEW SOCIAL MEDIA STRATEGY Faizal Jiwani, Sarah Hardy, and Peter Tong wrote this case under the supervision of Professor Derrick Neufeld solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-06-20 As the 2016 budget planning cycle for WestJet Airlines Ltd. (WestJet) was finishing up in October 2015, Richard Bartrem, vice-president of marketing and communications, met with Greg Hounslow, manager of social media, to discuss the growth and evolution of WestJet’s social media presence. As Canada’s second largest airline, WestJet had already achieved immense success with social media and had ambitions to expand its social media presence. However, it became clear through the budgeting cycle that the department’s budget for 2016 was going to remain flat. This posed a challenge for Bartrem and Hounslow as they were in the process of evaluating the launch of two new social media platforms in 2016: Snapchat and Pinterest. However, without the increased budget needed to support the platforms, they needed to make a decision. Which platform, if any, should they focus on in 2016? CANADIAN AIRLINE INDUSTRY Historically, success in the Canadian airline industry had been difficult to achieve given the capital, infrastructure, and labour required to start, grow, and sustain the business. Further, with revenue generation being highly sensitive to the economic and competitive environment, the likelihood of profitability and success was low. This was evident in the long list of airlines that had ceased operations over the years, including Jetsgo, Zoom, Harmony, and Canada 3000. In the midst of these failures, two Canadian national airlines remained operationally successful: Air Canada and WestJet. While Air Canada had experienced its share of challenges over the years, including bankruptcy protection in 2003, it had overcome these obstacles and continued to operate. The two airlines, Air Canada and WestJet, accounted for over 90 per cent of the domestic scheduled capacity (see Exhibit 1). The remainder was made up of smaller, predominantly regional carriers such as Porter Airlines. Despite historic challenges, air travel, a global industry that was critical in connecting people for both leisure and business purposes, supported economic growth in domestic and global economies. According to a report by the Conference Board of Canada and SNC Lavalin’s Airports and Aviation Group, “Canada’s air transport sector has an economic footprint of nearly CA$35 billion1 and supports some 140,000 direct jobs.”2
1 All currency amounts are in Canadian dollars unless otherwise specified. US$1 = CA$1.40 as of January 4, 2016. 2 Daniel-Robert Gooch, “Trade Tracks Air Travel,” Financial Post, April 16, 2014, accessed January 27, 2016, http://business.financialpost.com/fp-comment/trade-tracks-air-travel.
Fo r
us e
on ly
in th
e co
ur se
C on
te m
po ra
ry Is
su es
in B
us in
es s:
A C
as e
a t Y
or kv
ill e
U ni
ve rs
ity ta
ug ht
b y
V ar
io us
P ro
fe ss
or s
fr om
O ct
ob er
1 1,
2 01
9 to
O ct
ob er
1 1,
2 02
2.
U se
o ut
si de
th es
e pa
ra m
et er
s is
a c
op yr
ig ht
v io
la tio
n.
43
Page 2 9B16E019 In 2014, Air Canada and WestJet carried more than 58 million passengers and generated a combined revenue of $17.2 billion. This represented a year-over-year increase of 7.2 per cent and 7.5 per cent, respectively. Most importantly, both airlines generated record earnings in 2014 (see Exhibit 2). These results for Canada’s two largest airlines were great news for others in the industry, including airports and aircraft manufacturers. For example, Toronto’s Lester B. Pearson International Airport saw year-over-year passenger volume increase by 6.8 per cent in 2014 to over 38.5 million passengers.3 Similarly, Vancouver International Airport and Calgary International Airport saw passenger volume increases of 7.7 per cent (to 19.4 million)4 and 6.6 per cent (to 15.3 million).5 Aircraft manufacturers also benefitted given increasing aircraft order commitments by both Air Canada and WestJet, based on the success and opportunity the airlines were enjoying (see Exhibit 3). With the industry’s success, the possibilities of new competitive entrants looking to start-up in the Canadian market had intensified. Airlines such as Canada Jetlines, Jet Naked, and New Leaf Airlines began to seek funding to start operations and compete against the two established carriers. Funding would go to aircraft acquisition and staffing, as well as the underlying infrastructure and information technology (IT) systems investments (e.g., to support complex, essential processes such as selling seats to the public, managing reservations information and data, scheduling staff, dispatching and planning flight operations, and many other operational facets). However, all of the success in 2014 and the start-up potential for new airlines may have been short-lived as the Canadian economy started to show signs of weakness in the first half of 2015. Low crude oil prices and a weakened Canadian dollar were starting to impact the overall economy, particular in Alberta where WestJet was based. While lower jet fuel price helped both airlines, the overall reduction in travel due to the economy started to impact the profitability for both Air Canada and WestJet. Pricing and unit revenue performance for both were deteriorating (see Exhibit 4) and both were facing some strong headwinds. The result was a renewed focus on lowering the cost structure and gaining efficiencies; otherwise, the two airlines risked joining the list of failed airlines. WESTJET BACKGROUND In 1996, Clive Beddoe and three other partners founded WestJet after Beddoe became frustrated at the exorbitant cost and poor level of service he received when he travelled between Calgary and Vancouver for business. The founders decided to model WestJet after a well-known, highly successful low-cost airline in the United States, Southwest Airlines. In addition to creating a low-cost structure like Southwest, a foundational element of WestJet’s business model, and perhaps its biggest competitive differentiator, was its focus on a unique culture of care. The company referred to its passengers as “Guests” and to fellow employees as “WestJetters.” WestJet’s compensation philosophy and specifically its employee share purchase program (ESPP) enabled WestJetters to contribute up to 20 per cent of their salary to buy WestJet shares, with the company matching contributions at 100 per cent. Further, WestJet established a profit sharing program whereby, twice a year, a percentage of profits was shared by all WestJetters. These programs fuelled the culture of care and fostered a sense of pride and ownership as all WestJetters developed a vested interest in the success and profitability of the company.
3 Toronto Pearson, “Toronto Pearson (Enplaned + Deplaned) Passenger,” Passenger Traffic, December 7, 2015, accessed January 27, 2016, www.torontopearson.com/uploadedFiles/GTAA/Content/About_GTAA/Statistics/PassengerTraffic_102 015.pdf. 4 YVR, “YVR Passengers (Enplaned + Deplaned) 1992-Present,” accessed January 27, 2016, www.yvr.ca/Libraries/ Aviation_Marketing/1992-present_YVR_Enplaned_Deplaned_Passengers_November_2015.sflb.ashx. 5 YYC Calgary Airport Authority, “Calgary International Airport Local E&D Passenger Statistics,” Passenger Statistics, accessed January 27, 2016, www.yyc.com/en-us/media/factsfigures/passengerstatistics.aspx.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
44
Page 3 9B16E019 WestJet’s low-cost structure enabled the airline to offer lower fares relative to its competitors. It was estimated that WestJet’s cost advantage was at least 30 per cent better than Air Canada and Canadian Airlines.6 WestJet was able to achieve its cost advantage by operating only a single fleet type, which allowed for efficiencies in training, maintenance, parts, and tooling. The airline also prided itself on having quick aircraft turns, which increased its aircraft utilization. WestJet offered only one class of service (economy), and a paperless ticketing system. Unlike most existing carriers, the company also allowed one- way fares without ticket restrictions, such as Saturday night layovers, providing consumers with greater flexibility. The result was lower fares and higher profitability. From 1996 to 2016, WestJet had grown from operating three aircraft across five Canadian cities with 220 employees, to operating 139 aircraft across 100 destinations (in North America, Central America, the Caribbean, and Europe) with more than 10,000 employees. Since inception, WestJet had generated a profit in every year of operations with the exception of 2004 (see Exhibit 5). Annual revenue in recent years was approximately $4 billion, thanks in part to initiatives such as the introduction of subsidiaries (vacations, regional travel), global partnerships, a rewards program, charging baggage fees for checked baggage, and the introduction of Plus seating to attract more business guests. WestJet also acquired four Boeing 767- 300ER wide-body aircraft in order to open up overseas expansion opportunities. LOOKING AHEAD Despite all the initiatives implemented over the years to grow revenue, as the economic reality of weakening demand started to set in for 2015, WestJet faced some serious revenue challenges. One of WestJet’s advantages, its low cost structure versus its key competitor Air Canada, had been deteriorating over time. Gregg Saretsky, WestJet’s president and chief executive officer, estimated in late 2012 that this cost advantage had shrunk from over 30 per cent, to only 10–15 per cent.7 WestJet’s controllable unit cost structure, as measured by cost per available seat mile (CASM), excluding fuel and profit share, had been trending upwards (see Exhibit 6). As a result, there was a renewed focus on cutting costs and becoming more efficient in the face of revenue uncertainty. WestJet’s ability to leverage IT would be a critical factor in gaining efficiencies in the airline operations supporting the company’s renewed focus on low cost. The airline had successfully adapted technology by allowing its guests to perform more functions on their own (i.e., self-serve) versus contacting a WestJetter, and by sending automated notifications to guests about their upcoming flight. WestJet had also expanded its telecommunications platform to allow contact centre agents to work from home, thus allowing personnel to avoid bad weather, reduce absenteeism, and adopt more desirable work schedules, while enabling the company to free office space for future growth and to access an expanded language labour pool.8 A third area in which WestJet had been able to leverage technology was in improving the guest experience through social media platforms. SUCCESS OF SOCIAL MEDIA AT WESTJET In 2008, given the ownership culture at WestJet, one WestJetter decided to create a WestJet Twitter account on personal time to communicate seat sales to followers (see Exhibit 7). In the fall of 2009,
6 Scott Deveau, “WestJet Looking to Cut Costs as ‘Cushion’ over Air Canada Shrinks,” Financial Post, December 6, 2012, accessed January 27, 2016, http://business.financialpost.com/news/transportation/westjet-looking-to-cut-costs-as-cushion- over-air-canada-shrinks. 7 Ibid. 8 WestJet, “2014 Annual Information Form March 18, 2015,” 15, November 5, 2013, accessed January 27, 2016, www.westjet.com/pdf/investorMedia/financialReports/WestJet2014AIF.pdf.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
45
Page 4 9B16E019 WestJet officially took over the Twitter account and hired its first full time WestJetter dedicated to social media, Hounslow, to manage both Twitter and Facebook. The timing was fortuitous; in November 2009, WestJet’s planned cutover to a new core IT reservation system, called Sabre, did not go as planned and created significant customer relations issues (e.g., guests were forced to wait on hold for hours to speak with a WestJetter). Social media provided a channel for guests to reach WestJet in real-time to have critical issues resolved. This social media presence also conveyed a sense that WestJet was doing everything it could to take care of its guests. Since then the company fully embraced social media as a means to connect, communicate, and maximize reach. WestJet continued to grow its social media presence and by 2015 participated in seven social media platforms: Twitter, Facebook, YouTube, Instagram, WestJet Blog, LinkedIn, and Periscope (see Exhibit 8). As social media evolved and grew, WestJet developed and formalized its social media strategy around three pillars: customer service, revenue support, and brand engagement.
Customer service focused around addressing guest questions, comments, and issues, and on minimizing average response time to inbound messages. WestJet was committed to demonstrating to guests the company’s caring culture and to interacting with guests in whatever manner they were most comfortable.
Revenue support leveraged social media as a channel to sell seats. WestJet had significant success in this area. One example of this was WestJet’s Kargo Kids April Fool’s video from 2012, which was promoted through multiple social platforms. Not only did the video generate over 1.2 million views, but through links and promotion code tracking, WestJet directly attributed over $1 million in sales to watchers.
Brand engagement referred to building and extending awareness of WestJet and its brand of a caring and fun culture. A great example of how WestJet created engagement was through its 2013 Christmas Miracle video, which by 2015 had been viewed over 44 million times across 234 countries and made more than one billion Twitter impressions (see Exhibit 9).
By engaging with social media platforms since 2008, WestJet created a significant number of “followers,” “likes,” and “subscribers” reaching different demographics of guests (see Exhibit 10), and was among the top airlines globally for social media reach. The scale of WestJet’s social media could be leveraged to compete more effectively against both existing airlines and new entrants. Further, at a time when revenue and the demand environment were weakening, having these platforms to communicate to guests not only supported short-term results but potentially built long-term loyalty to WestJet. As such, it seemed important that WestJet stay active with its existing social platforms while continuing to evaluate and adopt new platforms. Further, understanding how these platforms potentially allowed WestJet to reach new guests, or extend its reach into existing guest demographics, seemed relevant to the company’s short-term revenue needs as well as its long-term growth ambitions. Two newer and increasingly popular social media under consideration were Snapchat and Pinterest. SNAPCHAT Snapchat had quickly risen to be a significant platform in social media since its original release in 2011, so much so that Facebook made an acquisition offer of $3 billion (cash) in November 2013.9 In November 2015, Snapchat confirmed that “users of the ephemeral messaging app were now watching six billion
9 Vijay Pandurangan, “The Key to Snapchat’s Profitability: It’s Dirt Cheap to Run,” Wired, January 29, 2014, accessed January 27, 2016, www.wired.com/2014/01/secret-snapchats-monetization-success-will-surprise/.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
46
Page 5 9B16E019 videos every day.”10 This was up from the September 2015 report of four billion views, which was up from the May 2015 report of two billion views. Snapchat was reported to have 100 million daily active users11 involving 18 per cent of all social media users in the United States.12 Snapchat was rated the third most popular social app among the 18 to 34-year-old demographic, following Facebook and Instagram, but ahead of Twitter.13 A further review of Snapchat demographics revealed the heaviest users were millennials, with those in the 18–24-year-old demographic accounting for 45 per cent of views, followed by those in the 25–34-year-old group responsible for 26 per cent of views (see Exhibit 11). The gender breakdown of Snapchat users was 70 percent female and 30 percent male.14 Only a few companies (e.g., McDonalds, Starbucks, Audi, Heineken, General Electric, and CNN) had expanded their social media strategies to encompass Snapchat despite its massive popularity. Therefore, commercial adoption was still relatively low. As of November 2015, only four airlines had pursued Snapchat—Aer Lingus in 2014, Air New Zealand, Wow Air, and Virgin America in October 2015.15 Companies were using the short video formats or “Snapchat Stories” primarily to share exclusive or behind the scenes content. For example, Wow Air used Snapchat almost daily to provide customers with unique behind the scenes views through the eyes of flight attendants, ground crew, or travellers. Other companies like Cover Girl used the platform to direct Snap chatters towards the content they had built on their website.16 PINTEREST Evan Sharp, co-founder of Pinterest, defined the social media network as “a place where people can go to get ideas for any project or interest in their life. And as you encounter great ideas and discover new things that you didn’t even know were out there, you can pin them and make them part of your life through our system of boards . . . Pinterest is about connecting you with people who manifest one thing you want your life to be like.”17 Launched in 2010, Pinterest had acquired more than 30 percent of U.S. social media users by 2015;18 17 per cent of users visited the website daily, for an average time spent on the website of 14.2 minutes per visit.19 By June 2015, active Pinterest users surpassed 100 million,20 and the company was valued at $11
10 Lucas Matney, “Snapchat Reaches 6 Billion Daily Videos Views, Tripling from 2 Billion in May,” TechCrunch, November 9, 2015, accessed January 27, 2016, http://techcrunch.com/2015/11/09/snapchat-reaches-6-billion-daily-videos-views-tripling- from-2-billion-in-may/. 11 Kate Talbot, “5 Ways to Use Snapchat for Business,” Social Media Examiner, July 28, 2015, accessed January 27, 2016, www.socialmediaexaminer.com/5-ways-to-use-snapchat-for-business/. 12 Craig Smith, “By the Numbers: 70 Amazing Snapchat Statistics,” DMR Digital Stats/Gadgets, March 3, 2016, accessed January 27, 2016, http://expandedramblings.com/index.php/snapchat-statistics/. 13 Jeff Beer, “How 12 Brands Used Snapchat,” Co.Create, August 12, 2014, accessed January 27, 2016, www.fastcocreate. com/3033793/how-12-brands-used-snapchat/. 14 Evan Spiegel, “Snapchat by the Numbers: Stats, Demographics & Fun Facts,” Company Info (blog), October 7, 2015, accessed January 27, 2016, www.omnicoreagency.com/snapchat-statistics/. 15 Cynthia Drescher, “Get an Inside Look at Airlines on Snapchat,” Conde Nast Traveler, November 7, 2015, accessed January 27, 2016, www.cntraveler.com/stories/2015-11-06/get-an-inside-look-at-airlines-on-snapchat/. 16 Lucy Hitz, “10 Brands to Watch on Snapchat Right Now,” Simply Measured, July 31, 2015, accessed January 27, 2016, http://simplymeasured.com/blog/10-brands-to-watch-on-snapchat-right-now/#sm.105jap2i8kcncttg11guqnuxw1. 17 Alexis Madrigal, “What Is Pinterest? A Database of Intentions,” The Atlantic, July 31, 2014, accessed January 27, 2016, www.theatlantic.com/technology/archive/2014/07/what-is-pinterest-a-database-of-intentions/375365/. 18 Craig Smith, “By the Numbers: 270 Amazing Pinterest Statistics,” DMR Digital Stats/Gadgets, March 9, 2016, accessed January 27, 2016, http://expandedramblings.com/index.php/pinterest-stats/. 19 Ibid. 20 Erin Griffith, “Pinterest Hits 100 Million Users,” Fortune, September 17, 2015, accessed January 27, 2016, http://fortune.com/2015/09/17/pinterest-hits-100-million-users/.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
47
Page 6 9B16E019 billion.21 The demographic makeup of Pinterest users was fairly distributed with 26 per cent of users falling in the 25–34-year-old group followed by 21 per cent in the 35–44-year-old group (see Exhibit 11). Females made up 85 per cent of the users,22 and 45 per cent of users were outside the United States.23 Pinterest had been used successfully by many companies such as Target, Nordstrom, Jetsetter, Four Seasons Hotels and Resorts, and Sony. These companies provided content for users with ideas on fashion, recipes, planning the next vacation, home projects, new products, and much more. Nordstrom had attracted over four million followers: “With 64 boards—covering DIY, fashion, designer products, and decorating— they offer users plenty of rich, dynamic images, linking to countless [numbers] of items.”24 Four Seasons Hotels and Resorts also successfully used the online service:
Pins connect users to hotels all over the world through visually appealing photos of pools, oceans, decadent rooms and lush gardens. They also include pictures of delicious gourmet meals. It attracts the pinner to the hotel, saving it for future vacation ideas. The Four Seasons reports a 1,000 per cent increase in daily visitors to its sites and a 1,700 per cent increase in clicks from Pinterest.25
A long list of airlines, such as Southwest, Air New Zealand, British Airways, American, and Virgin America, had adopted Pinterest. Southwest had 20 boards on Pinterest with varying information including travel tips, destinations, and its annual report. CONTINUED EVOLUTION AND GROWTH Bartrem and Hounslow continued their discussion about which platform would best fit WestJet’s social media strategy and would support WestJet in both the short term and long term. They were excited at the prospects of continuing to grow and reach even more guests through social media, and were convinced that social media could provide a distinctive competitive advantage through this challenging time. Having been long time WestJetters, both were optimistic that the company’s culture of ownership and care would come together and bring success. But they were also wary of the serious challenges at hand. Given the softening revenue, the demand environment, and the renewed internal focus on cost reduction, a concurrent launch of both platforms was not possible; in fact, they would be lucky to add just one new medium in 2016. Which one should they bet on? How would it be supported? How exactly would it be utilized? They needed to get creative.
21 Jessica Guynn, “Pinterest to Launch ‘Buy’ Buttons,” USA Today, June 2, 2015, accessed January 27, 2016, www.usatoday.com/story/tech/2015/06/02/pinterest-buy-button-buyable-pins/28359997. 22 Smith, op. cit. 23 Ibid. 24 Asher Elran, “6 Businesses That are Using Pinterest to Their Advantage,” LinkedIn, October 14, 2015, accessed January 27, 2016, www.linkedin.com/pulse/6-businesses-using-pinterest-advantage-asher-elran. 25 “5 Brands Are Using Pinterest,” Vizified (blog), November 2015, accessed January 27, 2016, www.vizified.com/uncategorized/brands-are-using-pinterest-for-business-success/.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
48
Page 7 9B16E019
EXHIBIT 1: ESTIMATED DOMESTIC SCHEDULED CAPACITY MARKET SHARE
Source: “OAG data based on ASMs during the period from January 1, 2014 to December 31, 2014; represents the estimated share of the overall domestic scheduled capacity of Air Canada and its Contracted Carriers. The estimated share of the overall domestic scheduled capacity of the other carriers presented also includes the domestic scheduled capacity of their respective affiliated or contracted regional carrier(s), when applicable.” Air Canada, “2014 Annual Information Form,” March 31, 2015, p. 22, accessed March 21, 2016, www.aircanada.com/en/about/investor/documents/2015_aif.pdf.
EXHIBIT 2: AIR CANADA AND WESTJET 2014 PERFORMANCE
Financial Summary ($ in thousands, except per unit data) WestJet Air Canada Revenue 3,976,552$ 13,272,000$ Earnings before income taxes 390,307$ 105,000$ Net earnings 283,975$ 105,000$ Adjusted net earnings 317,188$ 531,000$ Load Factor 81.4% 83.4% Yield 19.09 18.90 RASM (cents) 15.54 18.00 CASM (cents) 13.68 16.90 CASM, excluding fuel, employee profit share (cents) 9.15 9.15 Segment Guests 19,651,977 38,526,000 Number of employees at period end 8,698 24,400 Fleet size at period end 122 364
Sources: Air Canada, “2014 Annual Information Form,” March 31, 2015, accessed March 21, 2016, www.aircanada.com/en/about/investor/documents/2015_aif.pdf; WestJet, “Annual Report 2014,” March 18, 2015, accessed March 21, 2016, www.westjet.com/pdf/investorMedia/financialReports/WestJet2014AR.pdf.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
49
Page 8 9B16E019
EXHIBIT 3A: AIR CANADA FLEET PLAN
ACTUAL 2014 2015 2016 2017
MAINLINE WIDE-BODY AIRCRAFT Boeing 787-8 6 8 8 8 Boeing 787-9 - 3 13 22 Boeing 777-300ER 17 17 19 19 Boeing 777-200LR 6 6 6 6 Boeing 767-300ER 21 17 15 10 Airbus A330-300 8 8 8 8 NARROW-BODY AIRCRAFT Boeing 737 MAX - - - 2 Airbus A321 10 13 14 14 Airbus A320 41 43 43 43 Airbus A319 18 18 18 18 Embraer 190 45 32 25 25 TOTAL MAINLINE 172 165 169 175
AIR CANADA ROUGE WIDE-BODY AIRCRAFT Boeing 767-300ER 8 14 18 25 NARROW-BODY AIRCRAFT Airbus A321 - 2 5 5 Airbus A319 20 20 20 20 TOTAL AIR CANADA ROUGE 28 36 43 50
TOTAL WIDE-BODY AIRCRAFT 66 73 87 98 TOTAL NARROW-BODY AIRCRAFT 134 128 125 127 TOTAL MAINLINE AND AIR CANADA ROUGE 200 201 212 225
PLANNED
Source: Air Canada, “Annual Report 2014,” accessed March 21, 2016, www.aircanada.com/en/about/investor/documents/ 2014_ar.pdf.
EXHIBIT 3B: WESTJET FLEET PLAN
ACTUAL TOTAL 2014 2015 2016 2017 2018-20 2021-23 2024-27 2027
BOEING 737-600 NG 13 - - - - - - 13 737-700 NG 64 - - - - - - 64 737-800 NG 30 12 5 1 - - - 48 737 MAX 7 - - - - 6 4 15 25 737 MAX 8 - - - 4 19 11 6 40 767-300 ERW - 2 2 - - - - 4 Disposals - (5) - - - - - (5) Lease expiries - (5) (6) (6) (21) (10) - (48)
TOTAL BOEING AIRCRAFT AFTER LEASE EXPIRIES 107 4 1 -1 4 5 21 141
BOMBARDIER Q400 NextGen 15 10 5 - - - - 30
TOTAL FLEET AFTER LEASE EXPIRIES 122 14 6 (1) 4 5 21 171
Future Deliveries
Source: WestJet, “Annual Report 2014,” accessed March 21, 2016, www.westjet.com/pdf/investorMedia/financialReports/ WestJet2014AR.pdf.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
50
Page 9 9B16E019
EXHIBIT 4: AIR CANADA AND WESTJET Q3 2015 REVENUE PERFORMANCE
2015 2014 % change 2015 2014 % change Load Factor 78.4% 79.7% -1.6% 83.5% 83.4% 0.1% Passenger Revenue per RPM (Yield) 18.7 19.1 -1.9% 18.0 18.9 -4.8% Passenger Revenue per ASM (cents) n/a n/a n/a 15.1 15.8 -4.4% Operating Revenue ASM (RASM) (cents) 14.7 15.6 -5.8% 17.1 18.0 -5.0%
Air CanadaWestJet
Source: WestJet, “Management’s Discussion and Analysis,” February 1, 2016, accessed March 21, 2016, www.westjet.com/pdf/investorMedia/financialReports/WestJet2014Q4-MDA.pdf; Air Canada, “2015 Management Discussions and Analysis,” February 17, 2016, accessed March 21, 2016, www.aircanada.com/en/about/investor/documents/2015_MDA_q4.pdf.
EXHIBIT 5: WESTJET TRACK RECORD OF PROFITABILITY SINCE INCEPTION
Source: WestJet, “Cowen and Company Global Transportation Conference,” presentation, 4, September 9, 2015, accessed March 21, 2016, www.westjet.com/pdf/investorMedia/WJA%20Presentation%20Cowen%20Sep%2020150909.pdf.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
51
Page 10 9B16E019
EXHIBIT 6: WESTJET UNIT COST STRUCTURE, CASM-EX FUEL, ON THE RISE
Source: WestJet, “Cowen and Company Global Transportation Conference,” presentation, 12, September 9, 2015, accessed March 21, 2016, www.westjet.com/pdf/investorMedia/WJA%20Presentation%20Cowen%20Sep%020150909.pdf.
EXHIBIT 7: WESTJET’S FIRST TWEET
Source: WestJet, “50% off Fall Travel,” Twitter, July 21, 2008, accessed March 21, 2016, https://discover.twitter.com/first- tweet#WestJet.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
52
Page 11 9B16E019
EXHIBIT 8: WESTJET SOCIAL MEDIA PLATFORMS OVER TIME
Source: Company records.
EXHIBIT 9: WESTJET CHRISTMAS MIRACLE 2013 STATISTICS
Source: Company records.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
53
Page 12 9B16E019
EXHIBIT 10: WESTJET SOCIAL MEDIA DEMOGRAPHICS
Source: Company records.
EXHIBIT 11: AGE DISTRIBUTION AT SOCIAL MEDIA NETWORKS
Note: U.S. Data—Users Aged 18 and Over—December 2014. Source: Mark Hoelzel, “A Breakdown of the Demographics for Each of the Different Social Networks,” Business Insider, June 20, 2015, accessed March 21, 2016, www.businessinsider.com/update-a-breakdown-of-the-demographics-for-each-of- the-different-social-networks-2015-6.
Female Male Female Male 13-17 0.5% 0.5% 3% 3%
Female Male 18-24 5% 4% 8% 14% Facebook 71% 29% 25-34 17% 7% 9% 19% Twitter 44% 56% 35-44 17% 6% 6% 13% YouTube 36% 64% 45-54 15% 5% 4% 8%
55-64 11% 3% 3% 4% 65+ 5% 2% 3% 3%
Facebook YouTube
45%
28% 28% 23% 19% 16% 16% 15% 14%
26%
23% 25% 26%
22% 25% 22% 26% 21%
13%
17% 18% 19%
21% 22% 19%
21% 22%
10%
15% 13% 15% 18% 18%
18% 17%
18%
6%
10% 11% 12% 13% 13% 15%
15% 16%
7% 6% 4% 7% 7% 10% 7% 9%
Snapchat Vine Tumblr Instagram Twitter Google+ Facebook Pinterest LinkedIn
18-24 25-34 35-44 45-54 55-64 65+
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
54
6.
UVA-F-1791
Rev. Jun. 29, 2018
This case was prepared by Robert F. Bruner, University Professor, Distinguished Professor of Business Administration, and Dean Emeritus and Kevin Hare (UVA ’17). Copyright © 2017 by the Trustees of the University of Virginia Darden School Foundation. All rights reserved. To order copies, send an email to [email protected]. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. Our goal is to publish materials of the highest quality, so please submit any errata to [email protected].
The Panic of 2008 and Brexit: Regional Integration versus Nationalism
[The] rise in nationalism is a global trend, and one of three critical consequences of the 2008 financial crisis that will play a pivotal role in shaping geopolitics in 2017. (The other two are economic stagnation and instability in export-dependent countries.) Its rise stems from the rejection of the internationalist model that has dominated international relations since the end of World War II. In places like Europe, it is easy to see why internationalism is losing favor. It is less obvious for the US. The European Union (EU) put in place policies and regulations that prioritized the Union’s survival over national interests, and this inherently creates conflicts of interest between the bloc and member states. This was exacerbated by the 2008 financial crisis. Member countries saw their economies crash while their hands remained tied by Brussels, which was slow to act and offered a narrow range of Band-Aid solutions.
—George Friedman and Allison Fedirka1
The Brexit vote was a triple protest: against surging immigration, City of London bankers, and European Union institutions, in that order.
—Jeffrey Sachs2
[T]he financial crisis of 2008–2009, which started in the U.S. but rapidly spread to Europe, has initiated a new period characterized by three larger crises: of capitalism, of democracy, and of the project of European Integration.
— Timothy Garton Ash3
Why have citizens across Western democracies become increasingly nationalistic, opposed to mass migration, and suspicious of international institutions? One answer is that this is a consequence of the financial crisis, which has left deep pockets of economic deprivation and underemployment. But that answer is clearly wrong, because these trends have been in place for the better part of 30 years. A more accurate answer would be that they reflect an inherent tension between national democratic sovereignty and elite-led efforts at global integration, and that this tension has now reached its breaking point.
—Roberto Stefan Foa4
On June 23, 2016, British citizens voted to leave the European Union (EU) by a margin of 52% to 48%. In advance of the referendum, President Barack Obama, US Assistant Secretary of State for European Affairs Phillip Gordon, and former US president, Bill Clinton, urged British voters to remain a part of the EU, due to the economic power that the UK brought to the EU and its role as a leader in geopolitics. On the other hand,
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
55
Page 2 UVA-F-1791
then-presidential candidate Donald Trump declared the UK to be “better off without [the EU].”5 It seemed extraordinary to some observers that American leaders would seek to influence British voters in what was an internal matter. Why did American (and other foreign) leaders deem it important to express an opinion? And what was the source of the surprising British sentiment? Was the UK referendum an isolated case or the symptom of broader forces at work? And what might those forces be?
The Foundations of European Economic Integration
The ideal of integration among the European countries was “to make war [within Europe] not merely unthinkable but materially impossible”6 and generally promote economic growth and welfare. Six countries agreed in 1951 to form the European Coal and Steel Community, which morphed in 1955 into the European Economic Community. The membership grew and, in 1993, the community agreed via the Maastricht Treaty to form the EU—this dramatically lowered trade barriers among member states and created a supranational European citizenship that greatly enhanced the mobility of the population among member states. By 2017, the EU included 28 countries.
The government of the EU consisted of numerous units, spanning a parliament, courts of law, a central bank (and a common currency, the euro), an executive council, and a bureaucracy to implement laws and regulations. As the EU matured, the size of its government increased, and critics charged that its tax burden, intrusion into the sovereignty of member states, and zeal for integration exceeded its mandate.
The Rise of UKIP and Separatism in the UK
Early in 2013, the Conservative Party in the UK came under immense pressure both from a growing Euroskepticisma within the party and the continued success of the United Kingdom Independence Party (UKIP). The UKIP had risen from a relatively unknown entity in British politics in the first years of the 21st century under the leadership of Nigel Farage. In the 2001 and 2005 parliamentary elections, the party gained only 1.5% and 2.1% of the vote, respectively. By the 2009 European Parliament elections, however, UKIP won 16.5% of the vote, good enough for second place, and displaced the traditional left Labour party in the process.
While the UK had not embraced the full measures associated with European integration—it had declined to join the European Monetary Union (EMU) or adopt the euro—the major British political parties had never embraced this ideology. Beginning as a one-issue party dedicated to simply leaving the EU, UKIP expanded its popular appeal on a variety of issues as its vote share expanded. One of the primary drivers of UKIP’s electoral success was its stance on immigration and against the free movement of people within the eurozone.
Since the beginning of the 1990s, European nations have embraced a system of reduced border controls in order to facilitate open movement of European citizens throughout the continent and islands. Beginning with the Treaty of Maastricht in 1992, citizens of EU nations had the right to move through and settle in other nations of the EU. The resulting migration into the UK by residents of other European nations became a central campaign issue for UKIP in its highly successful 2009 and 2014 bids for British seats in the European Parliament. Survey evidence shows that from the middle of 2007 until May 2008, immigration was the most important issue for British voters.7 As the Panic of 2008 took hold, however, grave concerns about the rapidly deteriorating state of the British economy quickly took the lead. Throughout this time, and especially beginning in late 2012, polling showed a substantial rise in fears about immigration. This tracked an increase in immigration from other EU nations during this time as well, with a net flow of immigration from the EU at
a “Euroskepticism” was the political attitude of disbelief in the benefits of alliance with the EU.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
56
Page 3 UVA-F-1791
approximately 50,000 for the year ending September 2012, and increasing to 150,000 for the year ending December 2014.8
The entrance of UKIP onto the national political stage was further assured by the results of the by-elections held between the 2010 and 2015 parliamentary elections. Under the British political system, by-elections are held when members of the House of Commons either resign or die between major elections. From the middle of 2011, UKIP began to compete strongly for local electoral seats, posting especially strong results in traditional Conservative and Labour districts in both southern and northern England.
British Negotiations for Reform
Faced with the rise of this new political force, David Cameron, the leader of the Conservative Party, was elected prime minister following the Conservative victory in the 2010 general election. He was faced with the necessity of reexamining the British relationship with the EU. In a speech delivered on January 23, 2013, Cameron promised the British people a process of negotiations over the membership status of the UK as part of the EU, followed by a simple plebiscite over the future of that membership.9 Cameron presented three main challenges:
First, the problems in the Eurozone are driving fundamental change in Europe. Second, there is a crisis of European competitiveness, as other nations across the world soar ahead. And third, there is a gap between the EU and its citizens which has grown dramatically in recent years. And which represents a lack of democratic accountability and consent that is—yes—felt particularly acutely in Britain.10
Beyond simply laying out these challenges, Cameron laid out his proposals and principles for the EU moving forward: competitiveness among EU nations, flexibility to incorporate a growing number of nations and cultures, more power and autonomy concentrated in each member state, democratic accountability through a strengthening of the national parliaments at the expense of a growing European parliament, and finally, fairness to all members of the EU, not simply those who were party to the EMU and the eurozone. Cameron believed he could secure a debate on these issues and advocated forcefully for remaining a part of the EU after the process of reforms.
In May 2012, public polling on the question of UK independence from the EU began to align with leaving the EU, for the first time since the implementation of the euro. Survey results confirmed this wave of separatism following the speech by the prime minister, though most polling suggested a contentious debate and no clear answer.11
Fifteen months after Cameron made his speech outlining a process of negotiations, in March 2014, he returned to the international stage to make his five guiding principles more concrete. His proposals centered on controlling immigration to the UK; establishing national sovereignty over pan-European legislation; reducing bureaucratic red tape for business; reducing the influence of the European Court of Human Rights over British law enforcement and courts; and putting a stop to the attempt by the EU to make the nations of Europe “ever closer.”12 In November 2014, those goals were further refined and specified as being a return to 1990s levels of net migration; an overhaul of the British welfare system in order to restrict access to British citizens, rather than all EU citizens; and more stringent privileges regarding deportation. In a letter to the EU in November 2015, Cameron clarified that eurozone laws should not necessarily apply to EU members outside of the EMU, and that, specifically, the UK would be free from the responsibility to bail out eurozone members in the future.13
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
57
Page 4 UVA-F-1791
Referendum and Campaigning
Negotiations between Britain and the EU finally concluded in February 2016. In a speech to Parliament on February 20, Cameron laid out the results of those negotiations and offered a simple choice to British citizens. On June 23, 2016, Britain would vote to either stay in the EU with new restrictions in place, or leave it altogether.
As the respective campaigns for the two opposing movements, Vote Leave and Stronger In, began to be formalized, key political stakeholders allied themselves with each side. The campaigns defied standard political parties: Cameron allied with Labour leader Jeremy Corbyn to advocate for continued British membership in the EU, primarily on the grounds that the issues facing Britain—climate change and terrorism, as well as stagnant economic growth—beset all Europe. Below the party-leadership tier, cabinet members such as George Osborne (chancellor of the exchequer) as well as former Labour prime minister Tony Blair supported the campaign.
The opposition, heading up the Vote Leave campaign, was primarily led by Conservative cabinet minister Michael Gove, former London mayor Boris Johnson, and Labour MP Gisela Stuart. While consistently an ardent proponent of leaving the Union, UKIP leader Nigel Farage was not part of the official leadership structure and instead led his own allied campaign to leave the EU.
To make its case, the Stronger In campaign primarily relied on:
Economic growth, specifically the potential for a Brexit vote to destroy access to the single European market, which would significantly boost British exports and other UK businesses.
Avoiding a reduction in free trade leading to a reduction in both investment in the British economy as well as a lower standard of living for families.
Britain’s role as a world leader. Many associated with the Stronger In campaign feared that following an exit from the EU, Britain would lose that special place.
On the other hand, the Vote Leave campaign decried the Stronger In positions as scare tactics and instead advocated leaving the EU, offering major policy positions such as:
Additional funds sent to the EU, totaling GBP350 million weekly, could be spent on the National Health System.b
Britain would be able to control its borders—in order to screen immigrants more carefully.
Increased opportunities for bilateral free-trade agreements, not requiring the approval of the EU.
A freedom from lawmaking at the European level, which the Vote Leave campaign framed as being antidemocratic.
Polling throughout the campaign, beginning before the announcement by Cameron, showed that there was a significant lead in votes to remain in the EU in late 2015 and early 2016, but not an insurmountable one, and often within the margin of error of the poll. As the spring advanced, however, votes to remain sustained a narrow lead. A caveat to this, however, was the consistently large portion of the population unwilling to commit to a side. While some polling evidence registered undecided voters under 10% of the population, most polls revealed large segments of voters who had yet to make up their minds.
b GBP = British pounds; USD = US dollars.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
58
Page 5 UVA-F-1791
Beginning in May, the polling began to tighten significantly, and in early June, it had become clear that votes to leave the EU had taken the lead as the portion of the undecided population declined steadily. In the waning days of the campaign, however, the race became a dead heat, with a sizeable group still undecided, making knowledge of the outcome difficult to discern.
Referendum and Results
On June 23, 2016, British voters headed to the polls. The outcome of the referendum, dubbed “Brexit”— a combination of “Britain” and “exit”—resulted in a victory for those who voted to leave, with 52%, compared to 48% who voted to remain. Voter turnout across the UK stood at 72.2% of those eligible. Below the surface, there were also significant dispersions of voters. For instance, both Scotland and Northern Ireland voted in strong numbers in favor of remaining in the EU, with margins of victory of 24 and 11 points, respectively. Contrary to this vote however, Wales and England voted to leave—in proportions not significantly different from the UK as a whole.
There was also a considerable split in the voting based on geography within England. In many London boroughs, votes to remain tallied well over 75%. This pattern was repeated across a number of larger British cities such as Manchester, Liverpool, Bristol, and Leicester. Rural Britain, concentrated in northern and eastern England, but also drawing strongly on the stagnating Midlands region, voted strongly in favor of leaving the EU.
National referendums can confer legitimacy on a policy decision that has gridlocked a national legislature. And with the advent of digital technology, it was hoped that a referendum of a better-informed electorate would democratize policy making, enhance political discourse and communication, and produce a more cosmopolitan electorate. But after the Brexit vote, analysts pointed out that the democratic appeal of national referendums had flaws. The ability of referendums to gauge the national will is vulnerable to low turnout, electoral confusion, charismatic demagogues, contagion by social media, and attention-grabbing fringe movements.
After the Referendum
One of the immediate effects of the Brexit vote occurred in the currency markets. On Friday, June 24, the British pound lost as much as 13% of its value and hit a 30-year low. By the end of 2016, the British pound had declined further amid fear and uncertainty concerning the future of the British economy, reaching USD1.234 by the end of 2016, down from USD1.488 on the eve of the referendum. The shockwaves also spread across most British equity markets as well, though mostly in the near term. While the FTSE 100, which measured the largest 100 companies listed on the London Stock Exchange, fell 5.6% in the days following the vote, it went up nearly 13% by the end of 2016. Uncertainty over the timing and method of exiting the EU contributed to considerable uncertainty about the future of British markets, fueling speculation about the continued dominance of London as a financial center in the era of restricted immigration.
In the weeks and months following the June referendum, the British political landscape experienced a massive upheaval. Starting in the days immediately following the vote, Prime Minister David Cameron announced his resignation as soon as a new member of the governing coalition was selected as prime minister. As the primary leader of the Stronger In campaign throughout the spring, he had staked his future leadership on the result. Following Cameron’s resignation, former Home Secretary Theresa May was appointed prime minister in July 2016. A member of the Conservative party, May originally supported the Stronger In campaign, but pledged to uphold the will of the people, famously remarking, “Brexit means Brexit, and we’re going to make a success of it.”
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
59
Page 6 UVA-F-1791
In order to leave the EU, May and the UK Parliament must vote to trigger Article 50 of the Lisbon Treaty, which was passed in 2007 in order to reform the bases of the original treaties creating the EU. Following the formal invocation of Article 50, the UK will have two years to negotiate the terms of withdrawal from the treaty and the EU. In October 2016, May signaled that she intended to notify the EU of the triggering of Article 50 by the end of March 2017. Though not formally triggering Article 50, in January 2017, May called for a “hard” or “clean” Brexit that would involve a complete withdrawal from the single European market, giving far greater control to the British government over immigration, customs, and trade, while limiting international access.
Nationalism and Separatism in Europe
Following the Panic of 2008 and the sovereign debt crises in Europe, substantial nationalist political factions arose throughout Europe. In many major European countries, political parties espousing a return to a past European landscape—keying in on restrictions on immigration and refugee resettlement—had taken center stage in recent elections. Coupled with an uptick in separatist parties seeking to gain complete autonomy for regional governments, the European political landscape had changed significantly.
The rise of these parties affected small, isolated countries such as Denmark and Finland, as well as the most prominent and successful regional powers, such as Germany and France. In France, the Front National (FN), or National Front, which surged in public-opinion polling ahead of the April 2017 elections, capitalized on support in deindustrialized areas and with blue-collar workers across the nation. The rise of UKIP in the UK, a party distinctly and successfully advocating for a removal of Britain from Europe, as well as the rise of Alternative für Deutschland (AfD), or Alternative for Germany, both demonstrated the serious levels of support for populism and nationalism.
A Revival of Older European Nationalist Parties
While always on the fringes of the French political system, the FN maintained an electoral presence for decades. In the 2002 French presidential election, Jean-Marie Le Pen, father of 2017 presidential candidate Marine Le Pen, advanced to the second round of voting by narrowly receiving the second-highest tally in the initial round. The staunchly populist party failed, however, to gain any ground on its initial victory when the elder Le Pen’s opponent, Jacques Chirac, won 82% of the vote in the second, final round. The FN regained voter support in part due to its anti-European and antiglobalization positions. Similar to the United States, 2017 presidential candidate Marine Le Pen repeatedly embraced US President Donald Trump, adopting similar slogans and positions regarding protectionism and Russian foreign policy. In terms of absolute support, in the December 2015 elections, the FN won 6.6 million votes—up 200,000 despite a 20% drop in overall voter turnout. With an emphasis on immigration and rising Muslim populations, the FN polled at 45% with blue- collar workers and 38% with the unemployed and younger workers in late 2016.14 The success of nationalist parties with the economically disenchanted, however, was not unique to FN and France.
Among the political parties featuring deep European roots, the Freedom Party of Austria (FPO) was one of the first to be formed. Founded in the years following World War II by former members of the Nazi party, the FPO changed in the decades that followed and came to represent classically liberal economic views. In the 1980s, the FPO adopted anti-immigration policies and later evolved into a party representing a broad range of antiestablishment positions bent on remaking Austria’s power structure. The most recent rise of the FPO as of 2017 came amid steadily rising unemployment figures in Europe following the global financial crisis. More broadly, the lack of economic opportunity in Austria drove a populist economic message. The manifestation exists in voting patterns similar to the FN in France, as Austrian manual laborers overwhelmingly voted for the FPO in the December 2016 presidential election, while white-collar workers strongly supported the opposition.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
60
Page 7 UVA-F-1791
The result of the election, however, was a victory for the coalition opposing the FPO. The FPO candidate, Norbert Hofer, received 46.2% of the vote in the final round, demarcating the strong position of the party. Not all European nations experienced a similar resurgence, however, as many saw completely novel parties arise.
New Parties at the Table
As of 2017, perhaps the most recent party formation to threaten well-established European parties was Alternative für Deutschland (AfD) in Germany. The party began as a reaction to the eurozone bailouts and was initially formed by economists; however, one founder, Bernd Lucke, left the party in 2015 because of its growing nationalism. In its first national election in 2013, AfD won slightly less than 5% of the national vote, a modest total for German elections. Ahead of the 2017 elections, however, AfD polled as high as 16%, a high figure for German elections. Like many European populist parties, the composition of AfD voters was unconventional. One professor of political science at the University of Mainz identified up to one-third of supporters as previously not supporting a party before AfD rose to prominence. Politically, AfD aligned itself with a number of its nationalistic counterparts, taking a distinctly anti-immigration stance, especially following the 2015 refugee crisis and mass migration to Germany. To that end, the party favored a reintroduction of stronger border controls as well as more stringent regulations regarding asylum seekers. The official positions of the party went even farther, asserting that “Islam is not part of Germany,”15 and proposing bans on both the Muslim call to prayer and the wearing of burqas in public. Economically, the party supported reforms in the eurozone to limit the size of bailouts and called for a referendum on whether Germany should drop out of the EMU.
Many other European nations, facing increased debts and stagnant economies, coupled with a massive increase in asylum seekers arriving on the continent, saw a similar rise in populism and nationalism. In Denmark, one of the few European nations not using the euro, the Danish People’s Party (DPP) emerged. This nationalist, anti-immigration, and anti-EU party finished second in the 2015 elections, with 21% of the vote, only a year after winning 27% of the vote in the 2014 European Parliament elections. Elsewhere in Scandinavia, the political forces were similar; the Sweden Democrats party—similar in politics to the DPP—received 13% of the vote in 2014.
Italian politics were characterized by strong populist and separatist elements over the previous quarter century. Lega Nord (LN), or Northern League, was founded in 1991 as a party dedicated to promoting federalism in Italy; the party began to gain power in the following decade.16 After forming a coalition government with Forza Italia and Silvio Berlusconi in 1994,c LN became powerful on the national level.17 In the 1996 elections, the party unexpectedly won 10% of the popular vote, with most votes coming from conservative districts with a high concentration of commerce and professional employment.18 Employing a populist rhetoric, party leader Umberto Bossi clearly distinguished between the “ordinary people” who supported LN and the Roman political class. This common populist framing carried over into Italian politics after the Panic of 2008 as well.
In 1996, LN began to call for the secession of the “Padanian” region in Northern Italy, beginning the calls with protests that drew nearly a quarter of a million participants.19 Following the global financial crisis, LN surged to over 20% of seats in the national legislature. Apart from LN, a new political force arose in Italy, one that was less concentrated on regional exceptionalism. The Five Star Movement—an explicitly antiestablishment party, which based its platform on a drive to remove politicians from Rome and the center of the Italian political landscape—polled over 30% in early 2017, the highest of any party in Italy. One key
c Forza Italia was a center-right political party in Italy led by Silvio Berlusconi. Berlusconi was prime minister of Italy for nine years, the longest-
serving since the end of World War II.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
61
Page 8 UVA-F-1791
difference between many of the European nationalist parties and the Five Star Movement was that many of the voters were former center-left voters and municipalities, which differed significantly from the right-leaning politics of the majority of the leading European populist parties. Their voters, however, mirrored many of the blue-collar supporters of the FN in France and the FPO in Austria.
The Case of Greece
Unlike that of many of their European counterparts, but similar to the Italian experience, the Greek political landscape was remade by populists on both the left and the right. As one of the countries hit hardest by the Panic of 2008 and subsequent sovereign debt crises, the country saw an initial rise in populism from the political Left. Late in 2009, a Socialist government was elected under George Papandreou. Following bailouts of the Greek government and protests over the austerity measures imposed by the EU in the summer of 2011, Papandreou stepped down in favor of Lucas Papademos. Following another series of bailouts, the populist party Syriza won snap elections in January 2015, making leader Alexis Tsipras prime minister. Tsipras advocated for debt cancellation rather than more austerity, a position that was contrary to the more hawkish EU.
Aside from the left-leaning populist views of the new government in Greece, there was also a precipitous rise in right-wing nationalism. Following the beginning of the sovereign debt crisis in 2010, Golden Dawn exploded into the political atmosphere. The party took the Euroscepticism rhetoric and actions to a more extreme level as well. In 2015, party leaders faced trial after the party was accused of murder and armed attacks on civilians. The party adopted an anti-immigrant and proethnic–Greek stance that led many to label it neofascist and neo-Nazi. While not seeing proportions of the vote as high as nationalist parties in other European nations, in the 2015 elections, Golden Dawn secured nearly 500,000 votes. Supporters of the party were concentrated in the Aegean islands and the Dodecanese islands to the southeast of mainland Greece, which was also the point of arrival for many asylum seekers. The party won 7.8% and 8.1%, respectively, in the islands, while the national vote share totaled 7%. Succeeding across Europe, nationalist parties have enlisted new voters from across each nation.
Provincial Separatism within European Nations
Two regional separatist episodes featured prominently in subnational European politics in the years following the Panic of 2008. The first example was the Catalonia region of northeastern Spain. This region was one of the most prosperous in the nation, home to major cities such as Barcelona as well as productive industries. The movement in Catalonia began on National Day of Catalonia, September 11, 2012. Driven primarily by feelings of economic superiority as against court-ordered restrictions on regional independence, thousands of protestors marched in the streets. In late January of the following year, the regional government passed the “Catalan Sovereignty Declaration,” making Catalonia officially a sovereign entity—though this was later ruled unconstitutional. At the end of 2013, the regional government once again tried to establish independence, setting a formal date in late 2014. Only a few months later, however, the Spanish government denied the region the right to hold such a vote, which provoked the region to hold a “participatory” vote on the date originally planned. The result was a resounding victory for independence, with that side winning over 80% of the vote. Nearly a year later, in September 2015, the region once again held elections—this time using the regional legislature as a de facto referendum. Once again, proindependence parties won, gaining an absolute majority in the Catalan Parliament. This case was not the only instance of subnational exceptionalism boiling over.
While the Catalan region strove for independence from Spain, many in Scotland made a similar push to leave the United Kingdom. In early 2013, First Minister of Scotland Alex Salmond declared that Scotland would
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
62
Page 9 UVA-F-1791
hold a referendum on whether it would leave the UK and set the date for September 18, 2014. The referendum, concurrent with the rise of the Scottish Nationalist Party (SNP) foreshadowed the referendum in 2016 over the future membership of the UK in the EU. The SNP began the 21st century with a base of support of around 15,000 members, though this number rose steadily after 2003. In the months before the referendum, party membership had reached 40,000. Similar to other regional movements, the party argued in favor of using Scottish taxation and social security payments on Scots, as well as increasing benefits for children and the elderly. In September 2014, First Minister Salmond, who had advocated strongly in favor of independence, lost the referendum 55% to 45%, a result welcomed by then-US president Barack Obama and UK prime minister David Cameron. Party membership continued to rise following the referendum, however, and by mid-2016, membership stood at a formidable 120,000. These two separatist episodes demonstrated many of the overarching nationalist sentiments held by the wider European population and illustrated the battles being fought by national governments against broader isolationist parties and stances.
Making Sense of the Broader Trends
Exhibit 1 summarizes the chronology of separatist movements and events over the 1991–2016 period. Exhibits 2 and 3 present the changes in legislative representation by separatist parties. And Exhibit 4 gives changes in representation in the European Parliament by separatist parties. Clearly, separatist sentiment increased after the Panic of 2008 and the ensuing global financial crisis.
Elsewhere, the Jasmine Revolution of 2011 triggered an era of civil turmoil that swept many Middle Eastern nations. Followed by the civil war in Syria, the collective effect was to prompt a massive migration of refugees from war, civil unrest, and oppression toward Europe. Initially, European nations agreed to harbor these refugees, but as the economic, civil, and cultural burden mounted, public sentiment turned negative.
The chronology of Brexit and other separatist events suggests the influence of four powerful forces:
Economic nationalism. The increasing desire to retreat from free trade stemmed from the dislocations associated with the growing integration of nations into the global economy. Such dislocations included unemployment, the loss of manufacturing operations to lower-cost countries, and trade deficits. The Panic of 2008 and global financial crisis accelerated and amplified the economic dislocations. Parties advocating economic nationalism seemed to advocate mercantilism.d
Political nationalism reflected a recoil from international treaties that might bind the sovereignty of a nation. Voters felt growing alienation from supranational and multilateral institutions such as the European Parliament, International Court, World Trade Organization, NATO, and the United Nations. Parties advocating political nationalism seemed to advocate separatism and even isolationism in foreign policy—this did not bode well for multilateral treaties and organizations.
Cultural and ethno-nationalism. Purists sought to exclude immigrants and even return the country to the profile of an earlier day. Cultural nationalists might range from those who sought to return the country to uniformity of language and cultural traditions to (at the other extreme) racists, Holocaust deniers, and violent “skinheads.”
Populism. Embedded in many of the separatist movements was a distrust of the elites in business, government, and cultural institutions. Populists asserted that the elites had forgotten or abused the
d Mercantilism motivated the spread of colonial powers in the 17th century and advocated amassing wealth and productive capacity through favorable
trade balances, protectionism, and possibly, war.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
63
Page 10 UVA-F-1791
common people. Thus the populists sought to reclaim power over economic, political, and cultural decisions from the elites.
All of these manifestations revealed a paradox, that as globalization strengthened, so did the appeal of national identity. The World Values Study found that since 1981 measures of national pride rose in virtually all countries.20 And equally significant was the resistance to pluralism that resulted from these forces.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
64
Page 11 UVA-F-1791
Exhibit 1
The Panic of 2008 and Brexit: Regional Integration versus Nationalism
Chronology of European Separatist Movements and Events
Events of Panic of 2008
August 9, 2007: BNP Paribas announces it cannot value assets in tow of its hedge funds. September 13, 2007: British lender Northern Rock receives emergency financial support from the Bank of England; lines to withdraw money from accounts extend around block. February 17, 2008: Private bid for Northern Rock fails; nationalized by UK government. March 16, 2008: JP Morgan buys Bear Stearns with help of US Federal Reserve. Summer 2008: Home prices crater and new mortgages fall in UK and US September 15, 2008: British bank Barclay’s bid for American investment bank Lehman Brothers not approved by the Financial
Separatism, Nationalism, and Populism in Europe 1991: Formation of Northern League (LN), or Lega Nord, in Italy—party
dedicated to creating more federal Italy. 1994: LN allies with Silvio Berlusconi’s Forza Italia party to win
parliamentary elections as coalition. April 1996: LN unexpectedly wins 10% of popular vote in national election.
Most votes came from conservative districts with concentration of commerce-related employment.
Party leader Umberto Bossi used language to distinguish between “ordinary people” from the North and the “political class” based in Rome.
September 1996: LN calls for secession of “Padanian” region of Italy (various
northern states); 200,000–250,000 people attend demonstration for independence; party eventually loses momentum and power in following two years.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
65
Page 12 UVA-F-1791
Events of Panic of 2008
Services Authority (FSA); Lehman Brothers goes bankrupt. September 17, 2008: British mortgage lender HBOS is rescued privately by Lloyd’s. October 3, 2008: US Senate and House approve Troubled Asset Relief Program (commonly known as TARP). October 8, 2008: UK government approves GBP500 billion* (USD874.4 billion**) rescue package. October 13, 2008: RBS, Lloyd’s TBS and HBOS are bailed out by UK. December 2008: Major US automakers GM, Ford, and Chrysler are bailed out from TARP appropriation. January 19, 2009: Prime Minister of the UK Gordon Brown announces new bailout for financial system. February 2009: USD787 billion stimulus package (ARRA) passed in United States. March 9, 2009: Last major Icelandic bank shut down by financial authorities. Spring 2009: Bank of England begins “quantitative easing” by periodically injecting up to GBP50 billion into UK economy.
Separatism, Nationalism, and Populism in Europe January 26, 2009: Icelandic parliamentary government collapses due to
extreme banking crisis in country. January 30, 2009: Iceland put on fast track to European Union (EU)
membership to provide aid during financial collapse.
October 2009: Socialist government elected in Greece under George Papandreou.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
66
Page 13 UVA-F-1791
Events of Panic of 2008 April 2010: Greek debt rated junk. May 2010: Initial Greek bailout. October 2010: Austerity programs implemented in the UK. November 2010: Ireland bailed out by EU for USD113 billion. April 2011: Greece begins to struggle to repay bailout. May 2011: Portugal is bailed out by EU. October 26, 2011: Greek debt restructured in plan which forgives nearly half of original debt. May 2012: EU and Greece reach agreement on second bailout. June 9, 2012: Spain receives up to USD125 billion in bailout funds for its banks from members of the eurozone; bailout less stringent than others in Europe. September 2012: European Central Bank unveils program to buy unlimited bonds from eurozone countries.
Separatism, Nationalism, and Populism in Europe June 2010: New Flemish Alliance, a separatist party, wins most seats in national elections, but is unable to form government. Belgium continues without government. May–July 2011: Massive protests rock Greece in reaction to austerity imposed by EU; negotiations between EU and Greece in order to change the terms of repayment begin. October 31, 2011: George Papandreou calls for referendum on second bailout, then cancels; steps down in favor of Lucas Papademos. December 2011: Belgian minority party from Wallonia forms fragile governing coalition 541 days after crisis began. September 11, 2012: Protests begin in Catalonia in Spain on “national day” in favor of independence movement primarily driven by economic woes from financial crisis and court-ordered restrictions on independence. January 23, 2013: Catalonia passes “Catalan Sovereignty Declaration” making Catalonia sovereign entity; later ruled unconstitutional.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
67
Page 14 UVA-F-1791
Events of Panic of 2008
Separatism, Nationalism, and Populism in Europe March 21, 2013: Scotland declares that it will have a referendum on its independence on September 18, 2014. Proponents include First Minister Alex Salmond, who touts Scotland’s natural resources. Opponents cite security and economic reasons. April 2013: Center-right coalition wins election in Iceland, vows to put EU negotiations on hold. December 2013: Catalan government agrees on date for independence referendum. (Catalonia Votes). April 8, 2014: Spanish government denies Catalan government the right to formally hold vote of independence. September 18, 2014: Scotland votes to stay as a member of the UK, 55% to 45%. Result is welcomed by Prime Minister David Cameron and US President Barack Obama. October 4, 2014: 97% of municipalities in Catalonia favor holding independence vote; up to 80% of Catalan Parliament favor independence. October 2014: Spanish court suspends planned Catalan independence vote. November 9, 2014: Catalonia holds “participatory” process. Nonbinding results favor independence 80.76% to 4.54%. January 2015: Populist party Syriza wins snap elections in Greece; new Prime Minister Tspiras advocates for debt cancellation. March 2015: Icelandic government announces it is dropping its bid for EU membership. August 3, 2015: Catalan Prime Minister Artur Mas sets elections for September to be used as de facto referendum on independence. September 2015: Pro-independence parties gain an absolute majority in Catalan Parliament. February 2016: Negotiations end between UK government and EU for terms of staying in EU. February 20, 2016: Prime Minister David Cameron calls for referendum on whether the UK should leave the EU and encourages support; sets date for June 23, 2016. April 15, 2016: Official Brexit campaign begins; allegiances non-party based.
Vote Leave: Argues in favor of restricting free movement of peoples, freedom from European regulations and a reprioritization of spending on British citizens; primarily supported by former London mayor Boris Johnson (Conservative), Kate Hoey
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
68
Page 15 UVA-F-1791
Events of Panic of 2008 April 2016: Italy attempts to resolve banking instability through creation of industry-led bailout fund. December 23, 2016: Italian government bails out world’s oldest lender, Monte dei Paschi di Siena.
Separatism, Nationalism, and Populism in Europe
(Labour), and UKIP (United Kingdom Independence Party) led by Nigel Farage.
Stronger In (Remain): Makes case primarily in favor of the economic and security aspects of remaining a part of the EU; supported by Prime Minister David Cameron (Conservative), Chancellor of the Exchequer George Osborne (Conservative) and Labour leader Jeremy Corbyn, former prime ministers Tony Blair (Labour) and John Major (Conservative)
April 23, 2016: President Obama writes op-ed for The Telegraph in favor of “Remain” campaign. May 16, 2016: Then-candidate Donald Trump expresses support for Brexit in interview with Piers Morgan on Good Morning Britain. June 23, 2016: United Kingdom votes to leave the EU. June 24, 2016: Donald Trump expresses support for Brexit, saying, “Basically,
they took back their country. That’s a great thing.”21; Prime Minister David Cameron announces resignation. July 13, 2016: Pro-Brexit Home Secretary Theresa May becomes prime minister, promising to follow the results of the referendum and invoke Article 50, formally beginning the process of leaving the EU.
* GBP = British pounds.
** USD = US dollars.
Data source: Created by author from available news outlets.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
69
Page 16 UVA-F-1791
Exhibit 2
The Panic of 2008 and Brexit: Regional Integration versus Nationalism
Separatist Parties and Seats Gained in National Legislatures
Party Seats 2004–2009 Seats 2009–2014 Seats 2014–2019
Five Star Movement (Italy) 0 0 15/73
Northern League (Italy) 4/78 9/72 5/73
UKIP (Great Britain) 12/78 13/72 24/73
Sweden Democrats 0/19 0/19 2/20
Order and Justice (Lithuania)
1/13 2/12 2/11
Alternative for Germany (Germany)
N/A N/A 7/96
National Front (France) 7/78 3/74 24/74
Party for Freedom (Netherlands)
N/A 4/25 4/26
Congress of the New Right (Poland)
N/A N/A 4/51
Freedom Party of Austria (FPO)
1/18 2/19 4/18
Flemish Interest (Belgium) 3/24 2/22 1/21
Source: Created by author from data obtained from the European Parliament and BBC.22
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
70
Page 17 UVA-F-1791
Exhibit 3
The Panic of 2008 and Brexit: Regional Integration versus Nationalism
Nationalist Voting Power by Region (National Legislative Elections)
Source: Created by author from data obtained from the European Parliament and BBC.23
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
A ve
ra ge
S u
p p
o rt
UK/Ireland Mediterranean Northern Europe
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
71
Page 18 UVA-F-1791
Exhibit 4
The Panic of 2008 and Brexit: Regional Integration versus Nationalism
Nationalist and Populist Party Voting Power by Region (EU Parliamentary Elections)
Source: Created by author from data obtained from the UK Electoral Commission, the Ministry of the Interior of France, the Federal Returning Officer (Germany), the Ministry of the Interior of Greece, the Ministry of the Interior of Spain, the Ministry of the Interior of Austria, and the Ministry of the Interior of Italy.24
0
5
10
15
20
25
30
35
40
45
2004-2009 2009-2014 2014-2019
Se at
s H
el d
UK/Ireland Mediterranean Northern Europe Scandinavia Eastern Europe
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
72
Page 19 UVA-F-1791
Endnotes
1 George Friedman and Allison Fedirka, “Nationalism, the United States, and Cyclical Crises,” Mauldin Economics, January 2, 2017, http://www.mauldineconomics.com/this-week-in-geopolitics/nationalism-the-united-states-and-cyclical-crises# (accessed June 13, 2017).
2 Jeffrey Sachs, “The Meaning of Brexit,” Project Syndicate, June 25, 2016, https://www.project-syndicate.org/commentary/meaning-of-brexit-by- jeffrey-d-sachs-2016-06 (accessed Jun. 13, 2017).
3 Timothy Garton Ash, “Is Europe Disintegrating?” New York Review of Books, January 19, 2017, 24. 4 Roberto Stefan Foa, “It’s the Globalization, Stupid,” Foreign Policy, December 6, 2016, /http://foreignpolicy.com/2016/12/06/its-the-globalization-
stupid/ (accessed Aug. 18, 2017). 5 “EU Referendum: Donald Trump Backs Brexit,” BBC News, May 6, 2016, http://www.bbc.com/news/uk-politics-eu-referendum-36219612
(accessed Jun. 13, 2017). 6 Quoted from the declaration by French foreign minister Robert Schuman, May 9, 1950, at http://europa.eu/european-union/about-
eu/symbols/europe-day/schuman-declaration_en (accessed Jun. 14, 2017). 7 James Dennison and Matthew Goodwin, “Immigration, Issue Ownership, and the Rise of UKIP,” Oxford Academic,
https://academic.oup.com/pa/article/68/suppl_1/168/1403397/Immigration-Issue-Ownership-and-the-Rise-of-UKIP (accessed Jun. 13, 2017). 8 https://academic.oup.com/pa/article/68/suppl_1/168/1403397/Immigration-Issue-Ownership-and-the-Rise-of-UKIP. 9 EU Speech at Bloomberg, https://www.gov.uk/government/speeches/eu-speech-at-bloomberg, January 23, 2013 (accessed Jun. 14, 2017). 10 https://www.gov.uk/government/speeches/eu-speech-at-bloomberg. 11 “Leaving the EU,” Research Paper, House of Commons Library, July 1, 2013,
http://researchbriefings.parliament.uk/ResearchBriefing/Summary/RP13-42 (accessed Aug. 18, 2017). 12 Tim Ross, “David Cameron: My Seven Targets for a New EU, Telegraph, March 15, 2014,
http://www.telegraph.co.uk/news/newstopics/eureferendum/10700610/David-Cameron-my-seven-targets-for-a-new-EU.html (accessed Aug. 18, 2017).
13 “The Four Key Points from David Cameron’s EU Letter,” BBC News, November 10, 2015, http://www.bbc.com/news/uk-politics-34779250 (accessed Aug. 18, 2017).
14 Anne-Sylvaine Chaussany, “How France’s National Front is Winning Working-Class Voters,” Financial Times, October 21, 2016, https://www.ft.com/content/ad9502f4-8099-11e6-bc52-0c7211ef3198 (accessed Aug. 18, 2017).
15 “Germany’s Right-Wing AfD Party Adopts Anti-Islam Manifesto,” France 24, May 2, 2016, http://www.france24.com/en/20160502-germany- right-wing-AfD-party-adopts-anti-islam-manifesto (accessed Aug. 18, 2017).
16 Benito Giordano, “The Contrasting Geographies of ‘Padania’: The Case of the Lega Nord in Northern Italy,” Wiley and Royal Geographic Society, 2001. 17 Giordano, “The Contrasting Geographies of ‘Padania.’” 18 Iluvo Diamanti, “The Lega Nord: From Federalism to Secession,” Italian Politics 12, no. 65 (1997). 19 Diamanti, “The Lega Nord: From Federalism to Secession.” 20 See Foa, “It’s the Globalization, Stupid,” for more discussion. 21 “Donald Trump in Scotland, ‘Brexit a great thing,’” BBC News, June 24, 2016, http://www.bbc.com/news/uk-scotland-glasgow-west-36606184
(accessed Sept. 8, 2017). 22 The official 2014 results are here: http://www.europarl.europa.eu/elections2014-results/en/country-introduction-2014.html and the official 2009
results are here: http://www.europarl.europa.eu/elections2014-results/en/election-results-2009.html; BBC results are here: http://news.bbc.co.uk/2/shared/bsp/hi/vote2004/euro/html/2.stm (all links accessed Aug. 18, 2017). 23 http://www.europarl.europa.eu/elections2014-results/en/country-introduction-2014.html;
Official 2009 results are here: http://www.europarl.europa.eu/elections2014-results/en/election-results-2009.html; BBC results are here: http://news.bbc.co.uk/2/shared/bsp/hi/vote2004/euro/html/2.stm (all links accessed Aug. 18, 2018).
24 United Kingdom, http://www.electoralcommission.org.uk/our-work/our-research/electoral-data France, http://www.interieur.gouv.fr/Elections/Les-resultats/Legislatives Germany, https://www.bundeswahlleiter.de/bundestagswahlen/2017.html Greece, http://ekloges.ypes.gr/current/v/public/index.html?lang=en#{“cls”:”main”,”params”:{}} Spain, http://www.infoelectoral.mir.es/min/busquedaAvanzadaAction.html?vuelta=1&codTipoEleccion=2&codPeriodo=201606&codEstado=99&codCo munidad=0&codProvincia=0&codMunicipio=0&codDistrito=0&codSeccion=0&codMesa=0 Austria, http://wahl13.bmi.gv.at/ Italy, http://elezionistorico.interno.it/en/ (all links accessed Aug. 18, 2017).
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
73
7.
9-118-031
R E V : A P R I L 2 5 , 2 0 1 9
Professor Suraj Srinivasan and Research Associates Quinn Pitcher and Jonah S. Goldberg prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2017, 2018, 2019 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800- 545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
S U R A J S R I N I V A S A N
Q U I N N P I T C H E R
J O N A H S . G O L D B E R G
Data Breach at Equifax
It was October 4, 2017, and Richard Smith, the former CEO of Equifax, had just finished testifying before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. He had been called before the Committee to address the data breach Equifax had experienced between May and July earlier that year, which exposed personal information about over 145 million Americans. Smith had resigned just over a week earlier, the latest casualty of the massive crisis at the credit reporting agency, which had claimed the jobs of two other executives and spawned insider trading allegations, investigations, and dozens of lawsuits.a
Observers were critical of Equifax’s cybersecurity preparedness, as reports surfaced that the company had been notified about the software vulnerability exploited by its attacker in early March but had failed to fix it on time. They were also critical of the company’s response to the breach, especially the delay between when Equifax discovered the breach (July 29) and when it disclosed it to the public (September 7). Others questioned why the board was not notified until three weeks after the breach was uncovered and whether the board’s response was adequate.
Smith’s replacement, interim CEO Paulino do Rego Barros, Jr., and the board needed to respond to these criticisms. Facing an onslaught of lawsuits and investigations, Equifax had to improve its cybersecurity systems and convince both consumers and public officials that it remained a reliable steward of sensitive information. Accomplishing this, however, appeared easier said than done.
Equifax Founded in 1899, Equifax Inc. (Equifax) was a U.S. credit reporting company. Along with Experian
and TransUnion, Equifax was one of the three main credit reporting companies, responsible for collecting and providing information on income and credit-worthiness to organizations and
a The multiple congressional investigations into the breach (by the Senate Committee on Banking, Housing, and Urban Affairs, the Senate Committee on Homeland Security and Government Affairs, and the House of Representatives Committee on Oversight and Government Reform) produced a number of reports detailing the causes and consequences of the exfiltration of consumer data. These reports will be referenced throughout the case as the products of Congressional investigations.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
75
118-031 Data Breach at Equifax
2
individuals. “Powering the world with knowledge,” the company’s slogan, captured its aspirations. The company wrote in its 2016 annual report that:
We leverage some of the largest sources of consumer and commercial data, along with advanced analytics and proprietary technology, to create customized insights which enable our business customers to grow faster, more efficiently and more profitably, and to inform and empower consumers. Businesses rely on us for consumer and business credit intelligence, credit portfolio management, fraud detection, decisioningb technology, marketing tools, debt management and human resources-related services. We also offer a portfolio of products that enable individual consumers to manage their financial affairs and protect their identity.
Equifax collected consumer and business credit information from banks, analyzed it using proprietary processes, and sold the credit analysis, generating a gross margin of around 90 percent. Equifax managed data on more than 820 million consumers and over 91 million businesses around the world.1
Equifax’s primary business was its U.S. Information Services (USIS) segment, which comprised online information services, mortgage solutions, and financial marketing services. The first two services derived revenue from the sale of consumer and commercial credit reports and scores. Credit reports contained personal information including bill payment history, loans, debt, residency, and work history, providing a thorough picture of an individual or organization’s credit-worthiness. Lenders used credit reports to assess loan and credit applications.2
In Equifax’s Workforce Solutions segment, the same data collected for consumer credit reports was sold to organizations looking to verify individual employment and income history. Equifax also offered businesses services for handling unemployment claims, employment-based tax credits, and other similar programs. The company further operated a Global Consumer Solutions segment that provided credit monitoring and identity theft protection products in the U.S., Canada, and U.K.3
Equifax had seen great success, driven by its data collection and analysis services. During Smith’s tenure as CEO (from September 2005 to September 2017), its stock price had more than quadrupled, and the company had engaged in fifteen acquisitions.4
Cybersecurity at Equifax
The Reporting Structure
Its information-intensive business model made the company attractive to cybercriminals. Information security was therefore paramount for the company. Equifax wrote in its 2016 annual report:
We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact.5
After Smith was appointed CEO in 2005, the company invested millions in cybersecurity measures. This effort continued over time, with Equifax spending around one percent of its operating revenue on cybersecurity each year between 2014 and 2017.6 Early in his tenure, Smith brought on a cybersecurity
b In its 2016 annual report, Equifax described this as “decisioning software services, which facilitate and automate a variety of consumer and commercial credit-oriented decisions.” 2016 Annual Report. Equifax, Inc., p. 12.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
76
Data Breach at Equifax 118-031
3
expert, Tony Spinelli, as chief security officer (CSO), and Spinelli worked to modernize Equifax’s cyber defenses, rehearsing possible breaches and creating “24-hour crisis-management squads” that would remediate issues as they arose. Spinelli and his top deputy left Equifax in 2013, followed by a number of other senior cybersecurity employees.”7
Information security responsibilities at Equifax had been divided between two different chains of command. The first of these was legal/security chain of command. Here, the chief legal officer (CLO) supervised the CSO, who managed the security group, which comprised between 180 and 190 employees at the time of the breach. At the time of the breach, the CLO John Kelley, lacked a background in IT or security and had been in the position since 2013. The CSO was Susan Mauldin, a former software engineer who had transitioned into managing corporate information security systems some years prior to joining Equifax. The second chain of command dealt with information technology (IT). It was headed by the chief information officer (CIO), David Webb. Webb had joined Equifax in 2010 after three decades of working in IT.c Webb and Kelley reported directly to the CEO, Richard Smith.8
Webb described the division of responsibilities between the security and the IT organizations as follows:
Typically, the way the work was separated between the organizations, the Security organization would define the ‘what.’ They had a security engineering function. The IT guys were responsible for deploying the technology that [Security] wanted into the infrastructure, and then [Security] would be provided the ability to configure the software, all the solution [sic], the appliance, whatever it might be, in accordance with their desires.9
He continued:
The policy was typically defined within the Security organization. . . . The IT organization would be responsible for ensuring that, in the case, for example, of a patch, that the patch was applied. Because the Security organization could not effect changes to the infrastructure directly. They could operate software, but they could not install the software and they could not change the infrastructure.”10
In addition to these executives, Graeme Payne, the Senior Vice President and CIO for Global Corporate Platforms (from July 2014 to October 2017, previously Equifax’s Vice President of IT Risk and Compliance from March 2011), supervised important cybersecurity functions at Equifax. Payne reported to Webb, the CIO, and was responsible for overseeing “access management, IT-audit coordination, and IT-Security coordination” at the time of the breach.11
A number of teams dealt with cybersecurity issues at Equifax. Among them were the Global Threat and Vulnerability Management (GTVM) team, the Vulnerability Assessment team, and the Countermeasures team. The GTVM team tracked threats to the security of Equifax’s IT systems and notified relevant personnel across the company about such threats through emails and monthly meetings. The Vulnerability Assessment team ran regular scans of Equifax’s IT systems for vulnerabilities, and the Countermeasures team deployed code designed to obstruct the exploitation of ongoing vulnerabilities while IT “system owners” installed patches to resolve the underlying software problems.12
c Mauldin and Webb both resigned in September 2017, following the fallout from the breach.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
77
118-031 Data Breach at Equifax
4
Prior Security Issues
Prior to the breach in 2017, Equifax had suffered several security lapses. Between April 2013 and January 2014, hackers accessed credit report data from Equifax. In 2015, a “technical error” ostensibly caused by software modifications publicly exposed consumer information. In 2016, another incident exposed the salary and tax data of 431,000 employees at Equifax client Kroger. Finally, in February 2017, Equifax discovered that hackers were exploiting Equifax Workforce Solutions, downloading employee tax documents on Equifax clients like Northrop Grumman and Whole Foods. Equifax retained cybersecurity firm Mandiant to investigate the Workforce Solutions incident in March. While conducting its investigation, Mandiant “warned Equifax that its unpatched systems and misconfigured security policies could indicate major problems.”13
Equifax had received other warnings about potential cybersecurity vulnerabilities. In December 2016, an independent researcher discovered that Equifax had left consumer information exposed on a website accessible to any internet user (apparently intended for employees only). The researcher alerted Equifax to the vulnerability, but the company did not take down the website until June 2017. Equifax had also hired professional services firm Deloitte to perform a security audit in 2016. The audit identified several issues, including, said a former employee, “a careless approach to patching systems.” Another former employee said that attempts to address the audit went unheeded, “Every time there was a discussion about doing something, we had a tough time to get management to understand what we were even asking.”14
Several cyber risk analysis firms had previously found that Equifax was ill-prepared to prevent and respond to a data breach. In April 2017, Cyence, a cybersecurity firm specializing in quantifying the financial impact of cyber risks, assessed a 50 percent probability that Equifax would experience a breach in the coming year and found the company’s cybersecurity measures second-to-last in a peer group of 23 financial services firms. Other reports identified issues with Equifax’s data hygiene. Fair Isaac Corp. (FICO), which analyzed corporate cyber risk for insurance underwriting purposes, assigned Equifax an enterprise security score of around 550 on a scale of 300 to 850 and found that public websites run by Equifax “had expired certificates, errors in the chain of certificates or other web-security issues” as recently as July 2017. On a scale of A-F, with F being the worst, BitSight Technologies—a cybersecurity research firm—gave Equifax an F grade for application security and a D for software patching.15
MSCI’s ESG research team was especially critical of Equifax’s cybersecurity preparedness, giving the company a rating of zero for privacy and data security in April 2017 and an overall ESG rating of CCC (its lowest possible rating, given to just five percent of companies).d Specifically, MSCI noted, “The company’s data and privacy policies are limited in scope and Equifax shows no evidence of data breach plans or regular audits of its information security policies and systems.” Because all of Equifax’s revenue relied on the use of personal data, MSCI believed this exposed the company to serious regulatory risk.16
The Apache Struts Vulnerability
In early March 2017, a cybersecurity researcher discovered a security flaw in Apache Struts, an open source software used to build web applications in Java by organizations ranging from banks to government agencies. The researcher provided his findings to the Apache Foundation, the non-profit responsible for maintaining and updating the software, which published the research findings and a software patch for the issue on March 6.17 Researchers at Cisco Systems sent out a warning about the vulnerability on March 8.18
d MSCI scored other companies in Equifax’s peer group as high as a 9.5 out of 10 on privacy and data security.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
78
Data Breach at Equifax 118-031
5
The vulnerability was especially dangerous because it was accessible through two publicly available exploits. Hackers could simply scan for servers running Apache Struts that had yet to be patched, and upon identifying such servers, try to exploit the weakness. Once an exploit was executed, the hacker could add their own code to webpages, disable firewalls, and install malware with their IP address masked to prevent tracing.19 This process was not especially difficult either. A Senate investigation found that “individuals with basic computer skills – not just skilled hackers – could follow published instructions and exploit the vulnerability.”20
The popularity of the software and the seriousness of the vulnerability led the U.S. Department of Homeland Security’s Computer Emergency Readiness Team (CERT) to alert potentially vulnerable parties, also on March 8.21 Among those notified were Equifax’s GTVM team and Mauldin, its CSO. Equifax used Apache Struts as the middleware for its Automated Consumer Interview System (ACIS), a web portal that allowed consumers to dispute items in their credit reports.22
On March 9, the GTVM team circulated CERT’s notification to approximately 430 Equifax employees on relevant listservs. Under Equifax’s internal policies, the Apache Struts patch was “critical” and therefore needed to be implemented within 48 hours of its release.23 Nonetheless, in Smith’s words, “The vulnerable version of Apache Struts within Equifax was not identified or patched in response to the internal March 9 notification.”24
While the vulnerability was discussed in some depth at the GTVM team’s monthly threat meeting, on March 16, 2017, the majority of senior Equifax managers with cybersecurity responsibilities did not generally attend these meetings. No one was required to attend them, and the company neglected to log which employees chose to attend. Many employees did receive the slide deck presented at the meeting via email, which included the Apache Struts patch on a list of necessary software patches, as well as a list of the compromised versions of Apache Struts and specific instructions explaining how to update them. Because old vulnerabilities typically were not included in subsequent months’ GTVM slide decks, the Apache Struts vulnerability was absent from the list of necessary patches in the April 2017 deck.25
As a stopgap measure prior to patching a vulnerability, those responsible for the security of a vulnerable system often installed signatures and rules to identify and obstruct efforts to exploit the vulnerability in question. At Equifax, the installation of such signatures and rules was handled by the Countermeasures team. By the day that the GTVM team received CERT’s alert about the vulnerability, two different threat intelligence providers had already released signatures designed to defend against related attacks, but because of technical issues, it took the Countermeasures team until March 14 to install them. The day that these signatures were installed on Equifax systems, they blocked a “significant number” of attempts to infiltrate the company’s network via the Apache Struts vulnerability. Subsequently, both Equifax’s Vulnerability Assessment team and its GTVM team ran scans of the company’s systems for vulnerable versions of Apache Struts, and neither team’s scans yielded any results.26
The Breach
Hackers scanning for the unpatched vulnerability discovered it on an Equifax server on March 10. From there, an “entry crew” breached Equifax using the Apache Struts vulnerability before handing the operation off to a more sophisticated team, which worked over the next several months to establish access to dozens of Equifax databases (see Exhibit 1 for a technical explanation of the hack). The new team created over 30 backdoors into Equifax’s systems using web shells registered to unique internet addresses (increasing the difficulty of finding them all).27 From May 13 onward, the hackers began collecting personal identifying information (PII). Fo
r us
e on
ly in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
79
118-031 Data Breach at Equifax
6
The hackers continued to amass PII from Equifax’s servers until mid-summer. On the evening of July 29, Equifax’s Countermeasures team updated 74 Secure Sockets Layer (SSL) certificates on a variety of different applications, including the ACIS portal. SSL certificates were a key component of a security protocol that allowed for encrypted data exchange between web browsers and servers. Typically, the certificates needed to be renewed between every 12 and 39 months in order to stay active, and over previous years, Equifax had allowed hundreds to expire across its network. Updating the ACIS certificate reactivated an “SSL visibility appliance,” which allowed the Countermeasures team to monitor traffic on the ACIS portal. When the SSL visibility appliance was reactivated, it showed ACIS traffic from an IP address in China. This jumped out to the Countermeasures team because Equifax did not operate in China. They promptly blocked the IP address. The next day, they noticed additional ACIS traffic from another IP address associated with a Chinese entity and decided to take the ACIS portal offline, preventing further access by the hackers.28
When Equifax discovered the extent to which it had been breached, it completely shut down its dispute portal for 11 days while its cybersecurity staff worked to identify every entry point. Webb, the CIO, informed Smith of the suspect activity on July 31, but Webb did not make clear that PII had been stolen at that time. On August 2, Equifax hired the law firm King & Spalding LLP as well as Mandiant to investigate the breach and reported the suspicious activity on its network to the U.S. Federal Bureau of Investigation (FBI).29
On August 11, Equifax and Mandiant’s investigation discovered that hackers had been able to go beyond the data contained in the dispute portal and “may have accessed a database table containing a large amount of consumer PII, and potentially other data tables.” Smith was informed that consumer PII had been stolen on August 15. At an investor presentation the next day, Smith did not mention anything about the ongoing investigation or potential breach. On August 17, Smith held a senior leadership meeting to receive a “detailed briefing” on the investigation, and on August 22, he first notified a member of the board, lead director Mark Feidler, about the breach. The full board was informed via telephone meetings on August 24 and 25. Smith said, “on September 1, I convened a Board meeting where we discussed the scale of the breach and what we learned so far, noting that the company was continuing to investigate.” Equifax’s investigation team finalized its initial list of the 143 million people then believed to have been affected on September 4.30
The hackers obtained names, Social Security numbers, birth dates, and addresses for each of those 143 million people, and for a smaller number, email addresses, driver’s license numbers, credit card numbers, passport numbers, tax identification information, and credit report dispute documents.31
Sources of Vulnerability Inside Equifax
Internal Controls and the Patch Management Process
During his congressional testimony, Smith faulted a single employee for the failure to implement the software patch, suggesting that the vulnerability hadn’t been addressed because a manager had neglected to forward a warning email.32 In an interview with congressional investigators, Graeme Payne expressed his belief that Smith had been referring to him; Payne then disputed Smith’s characterization, saying:
To assert that a senior vice president in the organization should be forwarding vulnerability alert information to people . . . sort of three or four layers down in the organization on every alert just doesn’t hold water, doesn’t make any sense. If that’s the process that the company has to rely on, then that’s a problem.33
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
80
Data Breach at Equifax 118-031
7
Payne did not believe it was his job to pass the GTVM email on to anyone. He claimed that he was never instructed to forward emails of this type, and he believed that he had received the email “for informational purposes.”34 Payne noted that the responsibility for resolving software vulnerabilities at Equifax was determined by the company’s patch management policy. The patch management policy designated three different roles in implementing software patches. The “business owner” was charged with determining when the implicated systems were to be taken offline so that they could be patched. The “system owner” was then charged with patching the software in question, and the “application owner” was charged with making sure that the software had been fixed. Congressional reports differed on whether the occupants of these roles were formally designated at all, but at a minimum, such designations were “ambiguous.” For his part, Payne was quite sure he was not one of them, and he did not believe it was his responsibility to notify the system owners and application owners under his supervision of the vulnerability because the patch management policy required all of them to subscribe to “vulnerability distribution bulletins,” including the bulletin published by CERT.35
As the company’s CIO and CSO testified to Congress, “[T]here were no redundancies within the patching process to ensure the proper individuals were notified of the need to patch.” An internal audit Equifax conducted of its patch management infrastructure in 2015, concluded that the whole process took place on “the honor system.”36
That 2015 internal audit identified a number of significant problems with Equifax’s patch management process (resulting in a backlog of 8,500 unpatched vulnerabilities), and in 2017, many of those problems remained unresolved. In fact, when in August of 2017, Equifax was investigating security flaws in its ACIS system, three of the six flaws it identified had also been raised in the 2015 patch management audit.37 One of these three of particular importance was Equifax’s lack of a comprehensive inventory of its IT assets. Although the company had a number of different inventories, they were dispersed across different divisions within the organization, and none of them were comprehensive. This left both Equifax’s security personnel and Payne himself, who was in charge of IT for ACIS system, unaware that ACIS ran Apache Struts until July 2017.38
Another flaw identified in the 2015 audit that had not been fully addressed by 2017 was that Equifax’s approach to patching was reactive rather than proactive. This meant that rather than installing every software patch released for programs it used, Equifax only installed those software patches that were shown to be necessary to address specific vulnerabilities. Per the 2015 audit, this created a lag in the installation of critical patches – they were only installed after it had already become clear that failing to install them jeopardized the security of company systems, leaving those systems exposed in the interim. Moreover, the audit found that Equifax had no system in place to verify that identified vulnerabilities had, in fact, been successfully patched. Though the company ran regular scans to identify vulnerabilities, those scans were imperfect, and they were generally not subjected to scrutiny. Accordingly, if a vulnerability stopped turning up in scan results, Equifax assumed it had been adequately addressed, even though in some cases, it had not. In addition, Equifax’s patch management process failed to prioritize patching “critical” technology assets over patching less important technology assets, allowing longer-than-necessary lag times for the implementation of essential patches. Senate investigators found that all of these flaws persisted through the time of the breach.39
Equifax employees identified three reasons for weaknesses in patch management. First, because Equifax, as a company, had grown for many years by acquiring other companies, its technology systems were not well-integrated with one another, rendering certain system-wide security scans and updates difficult. Second, many of Equifax’s key technology assets ran on antiquated systems that would need to be updated themselves in order for the company to meet its own goals with respect to information security, but updating these fundamental systems “would lead to significant operational
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
81
118-031 Data Breach at Equifax
8
risk.” Third, Equifax simply did not have the personnel necessary to implement the technologies and processes that would be required to meet those internal security goals (see Exhibit 2 for a comparison of Equifax’s cybersecurity procedures with its competitors’).40
The “Accountability Gap” in the Organizational Structure
A Congressional investigation found that part of the reason why Equifax lacked a consolidated inventory of IT assets was related to how it organized its IT and security personnel. Until 2005, Equifax’s CSO reported to its CIO, who reported to the CEO, as is the practice at between one-quarter and one-half of companies with such positions. This structure integrated IT and security under one unified chain of command and was understood, even by Equifax’s CIO at the time of the breach, to be an industry best practice. If the CSO did not report to the CIO, the other common structure at large companies was for the CIO and the CSO to be positions of equal status that both reported directly to the CEO and the board of directors. In 2005, however, spurred by an interpersonal conflict between its CIO and CSO (both of whom had left the company by 2013), Equifax moved its information security unit out from under the CIO’s supervision and instead placed it under the supervision of the company’s CLO, making the CLO the “head of security,” a structure only employed at around eight percent of companies with such positions.41
In the view of the investigation, this division between the security and the IT organizations created an “accountability gap” in Equifax’s information security infrastructure.42 The House Committee’s report identified the problem as follows:
Depending on the organizational reporting structure a company adopts the CSO and CIO roles can be conflicting or complementary. At Equifax, the IT and Security organizations were siloed, meaning information rarely flowed from one group to the other. Collaboration between IT and Security mostly occurred when required, such as when Security needed IT to authorize a change on the network. Communication and coordination between these groups was often inconsistent and ineffective at Equifax.43
In April 2016, an internal restructuring of the IT organization led to the establishment of monthly meetings between the IT and Security leadership. These meetings aimed to ameliorate the problems of communication and coordination that had plagued the two divisions’ relationship. They were attended by Webb, Payne, Mauldin, and Kelley, among others. Though Payne testified that key vulnerabilities implicated in the data breach (like problems with patch management and digital certificate deployment) were discussed during the meetings, they were not resolved in time to fend off the Apache Struts hacks.44
Similarly, Smith’s quarterly senior leadership meetings also failed to compensate for the absence of “clear lines of accountability for developing IT security policies and executing these policies.” Because Mauldin, the CSO, was not considered a member of the senior leadership, she was not generally in attendance. This meant that Smith did not receive regular updates about the status of security concerns at Equifax. To the extent that security concerns were represented in these meetings, they were represented by the CLO, who, as mentioned earlier, had no experience or training in information security.45
Technological Barriers to Effective Oversight
According to a Congressional report, the final major obstacle to effective information security oversight at Equifax was that its dated technology made it difficult for the company’s IT and security teams to identify and address potentially malicious activity on its servers. The ACIS system through which the Apache Struts hackers gained access to Equifax’s network, for example, dated back to the 1970s, when it had been custom-built for the company to comply with the Fair Credit Reporting Act.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
82
Data Breach at Equifax 118-031
9
The report further found that because of its age and proprietary nature, the ACIS system was “extremely difficult to patch, monitor, or upgrade.” In fact, the only people who were capable of maintaining the system were a handful of its original developers, who fortunately still worked for Equifax in 2017, but there were not many of them left.46
Congressional investigators concluded that, in part because of these difficulties, Equifax’s technological infrastructure lacked three fairly standard security features which, had they been in place, would have made the breach far easier to detect and remediate. First, the ACIS system in particular lacked file integrity monitoring (FIM) processes. FIM processes scanned for unauthorized or otherwise suspicious alterations in IT systems, configurations, or application software files, allowing for the quick detection of the vast majority of common cyberattack strategies. Experts believed that if Equifax had had FIM processes in place in 2017, it would have detected the breach before a significant amount of data was stolen. Mauldin, the CSO, was unaware that the ACIS system lacked FIM until after the breach had been discovered.47
Second, Equifax’s web servers only retained log files back 30 days, whereas the National Institute of Standards and Technology recommended that companies retain logs going back at least three months (and up to a year, in some cases). Log files recorded activity on a network, allowing investigators to go back after a suspected breach and identify precisely what systems and information were compromised. They also made it easier to determine how hackers gained access to a network, enabling security professionals to more quickly eliminate vulnerabilities and backdoors. Information security experts had found that “targeted advanced attacks” on the networks of companies in the financial sector were only detected after, on average, 98 days, so maintaining log files for at least that much time was seen as crucial.48
Third, Equifax did not have a process in place for ensuring that SSL certificates throughout its systems were consistently up-to-date. At the time of the breach, Equifax was midway through rolling out a new SSL certificate management system that would have tracked the status of SSL certificates on the company’s network across applications, enabling a regular scan of the entire network for expired certificates. Until that point, however, responsibility for maintaining each individual SSL certificate had lay with the individual IT staff member responsible for the relevant application. This had led to a substantial backlog of expired certificates.49
Many of Equifax’s expired SSL certificates were part of “SSL visibility appliances” (SSLVs), which, when active, monitored encrypted traffic in and out of Equifax’s network. These appliances were set up to continue to allow through-traffic even when they could not monitor it due to expired certificates. As a result, once the ACIS system’s SSLV certificate expired in 2016, Equifax had no ability to monitor web traffic in or out of ACIS until after the breach. This meant that when in July 2017, cybersecurity experts started trying to determine how much damage the hackers had done, they lacked the records of server activity necessary to figure it out. Equifax knew of this vulnerability in their systems as early as January of 2017, when an internal security record was created stating: “SSLV devices are missing certificates, limiting visibility to web based attacks,” but the problem nonetheless went unaddressed. In mid-2017, there were at least 324 expired SSL certificates across Equifax’s network, and 79 of them were located in systems “monitoring highly business critical domains.”50
In addition, once the hackers had infiltrated Equifax’s system via the ACIS portal, they were able to move freely across its network “to any other device, database, or server . . . globally,” because the servers that hosted the ACIS system were not segmented from the rest of Equifax’s network. Though Equifax claimed to Senate investigators this was a deliberate choice to increase operational efficiency, the Senate investigation concluded that for the system to function properly, it would only have
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
83
118-031 Data Breach at Equifax
10
required connections to three external databases. Instead, it was connected to a far larger number. Mauldin admitted to the House Committee that appropriate segmentation would have reduced the severity of the data breach, and both she and Payne further confessed that they had been unaware of the lack of segmentation until after the breach had been uncovered.51
The servers also permitted users to access sensitive administrator and configuration files from outside of the system. Like the lack of segmentation, the House investigation found this to be a substantial departure from consensus best practices in cybersecurity. As the House report explained, “If Equifax had limited access to sensitive files across its systems, the attackers may not have found the stored application credentials used to access sensitive databases outside the ACIS environment.”52
Equifax’s Breach Announcement and Response On September 7, 2017, Equifax publicly announced that it had suffered a data breach exposing
personal information on 143 million Americans (see Exhibit 3 for Equifax’s initial press release and Exhibit 4 for a comparison of breach disclosure delays across companies). Equifax announced that it had established a website to help consumers determine if they were affected by the breach and that it had engaged Mandiant to help it assess the impact of the attack.53 Smith said, “While we’ve made significant investments in data security, we recognize we must do more. And we will.”54 Equifax’s stock price fell from a high of $143 before the breach announcement on September 7th to $93 about week later on September 15th, a decline of about 35 percent.
That same day, news broke that Equifax’s Chief Financial Officer (CFO), president of U.S. information solutions, and president of workforce solutions had sold around $1.8 million worth of stock on August 1 and 2. A spokeswoman for Equifax said the three had no knowledge of the breach.55
Equifax took several steps to protect consumers affected by the breach, including: “1) credit file monitoring by all three credit bureaus; 2) Equifax credit lock; 3) Equifax credit reports; 4) identity theft insurance; and 5) Social Security Number ‘dark web’ scanning for one year.”56 These services, part of Equifax’s TrustedID Premier service, were made available to all U.S. consumers for free for one year.57
Despite the company’s efforts, Equifax’s breach response exhibited significant missteps. For instance, after the company set up a website providing information about the breach with a unique domain: equifaxsecurity2017.com, a web developer created a similar-looking site at securityequifax2017.com to illustrate the security risk posed by unique domain. This confused even Equifax’s official Twitter account, which directed consumers to the fake website (see Exhibits 5 and 6 for the real and mocked up Equifax security websites).58
The website itself had a number of issues. A report prepared by the Office of Senator Elizabeth Warren found:
the website was set up to run on a stock installation of WordPress, which didn’t include the necessary security features to protect the sensitive information consumers submitted, and that the website’s Transport Layer Security certificate also did not perform proper revocation checks, which would have ensured that it was establishing a secure connection and protecting a user’s data. And then, on October 12, Equifax was forced to take down a web-page where people could learn how to get a free credit report when a security analyst reported that the site’s visitors were targeted by malicious pop-up ads.59
Consumers were also frustrated by the difficulty of contacting Equifax. Immediately following the breach, the company had around 500 customer service representatives on staff, forcing it to quickly
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
84
Data Breach at Equifax 118-031
11
hire an additional 2,000 in the month after the announcement.60 The Consumer Financial Protection Bureau (CFPB) reported over 7,500 complaints in the two months that followed relating to dropped calls, lengthy hold times, and Equifax agents not returning calls.61
Controversy even surrounded the company's offer of free credit file monitoring and identity theft protection. This service was provided by TrustedID, which Equifax owned. Critics complained that the service was only free for the first year; after that, consumers would be charged if they didn't call TrustedID to cancel their subscription. Critics were further incensed that the protection offer required those who signed up to agree to a mandatory, binding arbitration clause that precluded them from suing Equifax, including as part of class action lawsuits for damages caused by the breach (see Exhibit 7 for text of the initial arbitration clause).62 The clause sparked an uproar from consumers and others, including the New York State Attorney General, who complained that the terms of service were “unacceptable and unenforceable.”63 In response, Equifax added an explanation to the “frequently asked questions” section on its breach website on Friday, September 8, noting that the arbitration clause applied “to the free credit file monitoring and identity theft protection products, and not the cybersecurity incident.”64 Equifax eventually backtracked and removed the offending clause, claiming it had been included by mistake after the terms of use were copied from elsewhere.65
Besides the arbitration clause, Equifax also spurred outrage by initially charging consumers for credit freezes, which prevent credit bureaus from sharing a consumer’s credit file with third parties with whom the consumer did not have a preexisting relationship. Equifax dropped the $30.95 fee after public outcry, providing credit freezes for free, but planned to drop the freezes in 2018 with the introduction of a new “credit lock” product. These moves led to criticism of the limited timeframes on Equifax’s consumer protection measures. Consumers, the argument went, would be at risk of identity theft for years due to the exfiltration of their data, whereas Equifax was only providing them with free tools to prevent identity theft for the next year.66
Each day seemed to bring more public revelations about the extent of the breach. Although Equifax had initially claimed that hackers breached its systems in mid-May, public reports surfaced on September 18 detailing the initial breach in March (see Exhibit 8 for a timeline of the Equifax breach).67 Equifax claimed that there was no connection between the March breach and the May breach.68 On October 2, Equifax confirmed that Mandiant’s investigation had discovered an additional 2.5 million people effected by the breach.69 On October 10, Equifax announced that ten million people had had driver’s license data stolen70 and that 700,000 U.K. customers had had information stolen.71 In February 2018, reports emerged that the compromised consumer information had included passport numbers, which Equifax had not previously disclosed.72
Meanwhile, the identity and motive of the attacking group remained a mystery. Some investigators suspected that a foreign government was ultimately responsible for the breach based on its similarity to recent cyber-attacks at the health insurance provider Anthem, Inc. and the U.S. Office of Personnel Management. However, uncertainty remained, as Mandiant indicated in a report to Equifax clients in mid-September that it did not have enough data to identify those responsible.73
The Board of Directors and Its Role in Cybersecurity
Equifax’s board faced significant scrutiny in the wake of the breach. The board had 11 members (see Exhibit 9 for Equifax’s board) with an average tenure of 9.3 years, above the S&P 500 average of 8.2 years, with one director who had served since 1992.74 Among the three credit reporting agencies, Equifax was the only one with a separate technology committee mandated to monitor cybersecurity (see Exhibit 10 for the charter of Equifax’s technology committee). The technology committee would
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
85
118-031 Data Breach at Equifax
12
“review the Company’s technology investments and infrastructure associated with risk management, including policies relating to information security disaster recovery, and business continuity.” It had five members and was chaired by John A. McKinley, CEO of senior care service provider SaferAging Inc. McKinley had previously served as CTO of News Corporation, AOL Technologies, Merrill Lynch, and GE Capital Corporation.75 Another member, Mark Templeton, had recently served as CEO of networking software company Citrix Systems.
Fallout
In addition to the steep decline in the company’s stock price, the breach also cost several executives their jobs. Equifax’s CSO and CIO resigned on September 15.76 Smith resigned as CEO and chairman on September 26 and was replaced by do Regos Barros as interim CEO and director Mark Feidler as non-executive chairman.77
Equifax’s board reacted to charges of insider trading by the three executives who sold stock in the days after the breach was discovered and to allegations of malfeasance by the company’s senior management. The board announced that it was considering clawing back compensation from Smith and Mauldin.78 It also formed a special committee to review the stock sales and Kelley’s role as CLO in approving them.79 On October 26, the board announced that it was adding Scott McGregor, former CEO of semiconductor maker Broadcom, as a director, with Feidler saying that McGregor had “extensive data security, cybersecurity, information technology and risk management experience.”80 A few weeks later, on November 3, the board completed its review of the stock sales, finding that the executives in question did not know about the breach when they made their trades.81
The breach also led to dozens of lawsuits and government inquiries. The New York State Attorney General announced on September 11 that he had launched a formal investigation.82 The Federal Trade Commission launched its own investigation on September 14,83 and the Massachusetts Attorney General filed a lawsuit on September 19,84 with the San Francisco City Attorney following on September 27.85
One U.S. senator called the Equifax breach “one of the most egregious examples of corporate malfeasances since Enron.”86 Another launched an investigation into the breach, sending letters to Equifax and the two other major credit reporting agencies, as well as to several U.S. government agencies.87 Public officials were especially critical of Equifax’s lack of transparency and its delay in notifying the public.88 A group of senators introduced the Freedom from Equifax Exploitation Act, which would “enhance fraud alert procedures and provide free access to credit freezes, and for other purposes.”89
The breach had the potential to completely change the operations of the credit reporting industry. The director of the CFPB said that the three main reporting agencies would face a “new regime” of regulation, with embedded regulators at each company to prevent further breaches of PII. Said the director, “There has to be a scheme of preventive monitoring in place. They’re going to have to accept that, they’re going to welcome that, they’re going to have to be very forthcoming.”90
On October 18, Change to Win (CtW) Investment Group, an investment advisor and shareholder activism group affiliated with CtW, a federation of U.S. unions representing 5.5 million members, sent a letter to Equifax chairman Mark Feidler criticizing the board:
Despite being in the business of collecting, storing, and commercializing personal data, the haphazard response to the data breach indicates that the Board of Directors did not anticipate a core concern to the Company’s operations. In doing so, it appears as though the Board and management gave little thought to preserving Equifax’s most important asset—its reputation as a credit reporting agency.91
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
86
Data Breach at Equifax 118-031
13
CtW asserted that Equifax’s board “neglected to grasp the materiality of the data breach to both consumers and its shareholders. The group presented Equifax’s board with six proposals to improve governance and hold executives accountable, including the removal of the chairmen of the audit and technology committees, permanently separating the CEO and chairman positions, and considering legal settlements in determining executive compensation (see Exhibit 11 for the full list of CtW’s proposals). CtW threatened to withdraw support the reelection of directors at Equifax’s next annual meeting should Equifax fail to implement the proposals.92
Breach Disclosure Issues
The breach brought longstanding criticisms of U.S. data breach disclosure laws back to surface. About six weeks elapsed between when Equifax first discovered the breach and when the company first disclosed the breach to consumers. In the aftermath of the breach, observers questioned whether Equifax had violated any disclosure laws by waiting that long. Disclosure requirements, however, differed from state to state. In some states, disclosure was required within 45 days of discovery, while in others, no specific deadline was imposed, merely that companies notify consumers “as soon as possible.” Some congressional representatives proposed bills that would create a unified 30-day timeframe for alerting consumers. Some states also sought to hold Equifax to stricter disclosure requirements, with New York working to apply its financial institution cybersecurity rules to credit reporting agencies, requiring them to alert state regulators of a breach within 72 hours of discovery.93
Conclusion In the quarter following the breach announcement, Equifax’s profits fell by 27 percent year-over-
year. It immediately faced nearly $90 million in breach-related costs, 240 consumer lawsuits, separate investigations by the FTC, CFPB, SEC, and British and Canadian regulators, and requests for information about the breach from all 50 U.S. state attorneys general.94 The damage to the company had been severe. Equifax, however, was not alone in suffering from malicious cyber activity. Over the course of 2017, the FBI received reports of data breaches from 3,785 different corporate victims across the U.S.95 Furthermore, the IT company Cisco found that 55 percent of the 3,548 organizations it surveyed for its 2018 Security Capabilities Benchmark Study had experienced data breaches in 2017, as had 80 percent of organizations with over 50 vendors.96 Moreover, hacks at large companies were generally not trivial. The President’s Council of Economic Advisers found that on average, large cap, publicly traded corporations lost $498 million in market capitalization per major cyberattack they suffered between January 2000 and January 2017.97 In light of this, while many experts asked what Equifax could have done differently to protect itself, others wondered whether Equifax was really negligent or just unlucky.
F
or u
se o
nl y
in th
e co
ur se
C on
te m
po ra
ry Is
su es
in B
us in
es s:
A C
as e
a t Y
or kv
ill e
U ni
ve rs
ity ta
ug ht
b y
V ar
io us
P ro
fe ss
or s
fr om
O ct
ob er
1 1,
2 01
9 to
O ct
ob er
1 1,
2 02
2.
U se
o ut
si de
th es
e pa
ra m
et er
s is
a c
op yr
ig ht
v io
la tio
n.
87
118-031 Data Breach at Equifax
14
Exhibit 1 Technical Explanation of Hack Prepared by the House of Representatives Committee on Oversight and Government Reform
After entering the ACIS environment through the Apache Struts vulnerability, the attackers uploaded the first web shells, which are malicious scripts uploaded to a compromised server to enable remote control of the machine […]. Web shells can enable file system and database manipulation, facilitate system command execution, and provide file upload/download capability. In essence, a web shell provides a secret backdoor for an attacker to reenter and interact with a compromised system.
The ACIS environment was comprised of two web servers and two application servers, with firewalls set up at the perimeter of the web servers. Attackers exploited the Apache Struts vulnerability found on the application servers to bypass these firewalls. Once inside the network, the attackers created web shells on both application servers. This provided the attackers with the ability to execute commands directly on the system hosted on the application servers. Approximately 30 unique web shells were used to perform the attack. According to Mandiant, file integrity monitoring could have discovered the creation of these web shells by detecting and alerting to potentially unauthorized network changes. Equifax did not have file integrity monitoring enabled on the ACIS system at the time of the attack.
After installing the first web shells, the attackers accessed a mounted file share containing unencrypted application credentials (i.e., username and password) stored in a configuration file database […]. Mounting is a process by which the operating system makes files and directories on a storage device available for internal access via the computer’s file system. Attackers were able to access the file share because Equifax did not limit access to sensitive files across its internal legacy IT systems. Ayres stated storage of these credentials in this manner was inconsistent with Equifax policy.
Although the ACIS application required access to only three databases within the Equifax environment to perform its business function, the ACIS application was not segmented off from other, unrelated databases. As a result, the attackers used the application credentials to gain access to 48 unrelated databases outside of the ACIS environment.
Attackers ran approximately 9,000 queries on these databases and obtained access to sensitive stored data […]. The attackers queried the metadata from a specific table to discover the type of information contained within the table. Once the attackers found a table with PII, they performed additional queries to retrieve the data from the table.184 In total, 265 of the 9,000 queries the attackers ran within the Equifax environment returned datasets containing PII. None of the PII contained in these datasets was encrypted at rest.
The attackers stored the PII data output from each of the 265 successful queries in files. The attackers compressed these files and placed them into a web accessible directory. Then, the attackers issued commands through the tool Wget – a common system utility that allows the user to issue commands and retrieve content from web servers – to transfer the data files out of the Equifax environment. The attackers used the web shells to exfiltrate some of the data […]. The attackers used an estimated 35 different IP addresses to interact with the ACIS environment.
Source: United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 31-33, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
88
Data Breach at Equifax 118-031
15
Exhibit 2 Cybersecurity at Equifax and its Competitors
TransUnion Experian Equifax
Deployment Time for Critical Patches <14 days <15 days <2 days Regular Vulnerability Scans Weekly Weekly Monthly (and as needed) Complete IT Asset Inventory Yes Yes No Verification Process for Patch Installation Yes Yes No Official Policy for Tracking SSL Certificate Validity
No No No
Source: United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 5, 35-36, 55-62 https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
Exhibit 3 Equifax Press Release Announcing Data Breach, September 7, 2017
Equifax Inc. (NYSE: EFX) today annouced a cybersecurity incident potentially impacting approximately 143 million U.S. consumers. Criminals exploited a U.S. website application vulnerability to gain access to certain files. Based on the company’s investigation, the unauthorized access occurred from mid-May through July 2017. The company has found no evidence of unauthorized activity on Equifax’s core consumer or commercial credit reporting databases.
The information accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. In addition, credit card numbers for approximately 209,000 U.S. consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed. As part of its investigation of this application vulnerability, Equifax also identified unauthorized access to limited personal information for certain UK and Canadian residents. Equifax will work with UK and Canadian regulators to determine appropriate next steps. The company has found no evidence that personal information of consumers in any other country has been impacted.
Equifax discovered the unauthorized access on July 29 of this year and acted immediately to stop the intrusion. The company promptly engaged a leading, independent cybersecurity firm that has been conducting a comprehensive forensic review to determine the scope of the intrusion, including the specific data impacted. Equifax also reported the criminal access to law enforcement and continues to work with authorities. While the company’s investigation is substantially complete, it remains ongoing and is expected to be completed in the coming weeks.
“This is clearly a disappointing event for our company, and one that strikes at the heart of who we are and what we do. I apologize to consumers and our business customers for the concern and frustration this causes,” said Chairman and Chief Executive Officer, Richard F. Smith. “We pride ourselves on being a leader in managing and protecting data, and we are conducting a thorough review of our overall security operations. We also are focused on consumer protection and have developed a comprehensive portfolio of services to support all U.S. consumers, regardless of whether they were impacted by this incident.”
Equifax has established a dedicated website, www.equifaxsecurity2017.com, to help consumers determine if their information has been potentially impacted and to sign up for credit file monitoring and identity theft protection. The offering, called TrustedID Premier, includes 3-Bureau credit monitoring of Equifax, Experian and TransUnion credit reports; copies of Equifax credit reports; the ability to lock and unlock Equifax credit reports; identity theft insurance; and Internet scanning for Social Security numbers - all complimentary to U.S. consumers for one year. The website also provides additional information on steps consumers can take to protect their personal information. Equifax recommends that consumers with additional questions visit www.equifaxsecurity2017.com or contact a dedicated call center at 866-447-7559,
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
89
118-031 Data Breach at Equifax
16
which the company set up to assist consumers. The call center is open every day (including weekends) from 7:00 a.m. – 1:00 a.m. Eastern time.
In addition to the website, Equifax will send direct mail notices to consumers whose credit card numbers or dispute documents with personal identifying information were impacted. Equifax also is in the process of contacting U.S. state and federal regulators and has sent written notifications to all U.S. state attorneys general, which includes Equifax contact information for regulator inquiries.
Equifax has engaged a leading, independent cybersecurity firm to conduct an assessment and provide recommendations on steps that can be taken to help prevent this type of incident from happening again.
CEO Smith said, “I’ve told our entire team that our goal can’t be simply to fix the problem and move on. Confronting cybersecurity risks is a daily fight. While we’ve made significant investments in data security, we recognize we must do more. And we will.”
Source: “Equifax Announces Cybersecurity Incident Involving Consumer Information.” Equifax, Inc., September 7, 2017, https://investor.equifax.com/news-and-events/news/2017/09-07-2017-213000628, accessed October 2017.
Exhibit 4 Timing of Disclosure of Major Data Breaches
Company Year of Breach Time Between Discovery and Disclosure
Home Depot 2014 6 days Target 2013 7 days Anthem 2015 8 days Google 2018 ~7 months Yahoo 2013 ~3 years Equifax 2017 ~6 weeks
Source: United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 46-51, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
90
Data Breach at Equifax 118-031
17
Exhibit 5 Equifax Data Breach Homepage, eqiufaxsecurity2017.com, September 8, 2017.
Source: equifaxsecurity2017.com, accessed via archive.org, January 2018.
Exhibit 6 Fake Equifax Data Breach Homepage, securityequifax2017.com
Source: Dell Cameron, “Equifax Has Been Sending Consumers to a Fake Phishing Site for Almost Two Weeks.” Gizmodo,
September 20, 2017.
Fo r
us e
on ly
in th
e co
ur se
C on
te m
po ra
ry Is
su es
in B
us in
es s:
A C
as e
a t Y
or kv
ill e
U ni
ve rs
ity ta
ug ht
b y
V ar
io us
P ro
fe ss
or s
fr om
O ct
ob er
1 1,
2 01
9 to
O ct
ob er
1 1,
2 02
2.
U se
o ut
si de
th es
e pa
ra m
et er
s is
a c
op yr
ig ht
v io
la tio
n.
91
118-031 Data Breach at Equifax
18
Exhibit 7 Text of Initial TrustedID Arbitration Clause
ARBITRATION. PLEASE READ THIS ENTIRE SECTION CAREFULLY BECAUSE IT AFFECTS YOUR LEGAL RIGHTS BY REQUIRING ARBITRATION OF DISPUTES (EXCEPT AS SET FORTH BELOW) AND A WAIVER OF THE ABILITY TO BRING OR PARTICIPATE IN A CLASS ACTION, CLASS ARBITRATION, OR OTHER REPRESENTATIVE ACTION. ARBITRATION PROVIDES A QUICK AND COST EFFECTIVE MECHANISM FOR RESOLVING DISPUTES, BUT YOU SHOULD BE AWARE THAT IT ALSO LIMITS YOUR RIGHTS TO DISCOVERY AND APPEAL.
Except as otherwise expressly provided in this Agreement, all claims, disputes, or controversies raised by either You or TrustedID, Inc. arising from or relating to the subject matter of this Agreement or the Products (“Claim” or “Claims”) shall be finally settled by arbitration in the county (or parish) where you live or where You and TrustedID, Inc. otherwise agree using the English language in accordance with the Arbitration Rules and Procedures of JAMS then in effect, by one commercial arbitrator with substantial experience in resolving complex commercial contract disputes, who may or may not be selected from the appropriate list of JAMS arbitrators.
This arbitration will be conducted as an individual arbitration. Neither You nor We consent or agree to any arbitration on a class or representative basis, and the arbitrator shall have no authority to proceed with arbitration on a class or representative basis. No arbitration will be consolidated with any other arbitration proceeding without the consent of all parties. This class action waiver provision applies to and includes any Claims made and remedies sought as part of any class action, private attorney general action, or other representative action. By consenting to submit Your Claims to arbitration, You will be forfeiting Your right to bring or participate in any class action (whether as a named plaintiff or a class member) or to share in any class action awards, including class claims where a class has not yet been certified, even if the facts and circumstances upon which the Claims are based already occurred or existed.
…
Notwithstanding anything in this Section, either You or TrustedID, Inc. may bring an individual action in small claims court as long as (i) the claim is not aggregated with the claim of any other person, and (ii) the small claims court is located in the same county (or parish) and state as Your address that You most recently provided to TrustedID, Inc. according to TrustedID, Inc.’s records in connection with this Agreement.
Source: Equifax Terms of Use as Of September 6, 2017, accessed via https://web.archive.org/web/20170909011235/https://www.trustedid.com/premier/terms-of-use.php, January 2018.
Note: The arbitration clause was initially included in the Terms of Use when consumers signed up for free protection from Equifax’s TrustedID product. The clause was removed on September 8, 2017.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
92
Data Breach at Equifax 118-031
19
Exhibit 8 Timeline of Equifax Data Breach
Source: Compiled by casewriters.
March 8 •Cisco Systems
and the U.S. DHS CERT alert potentially vulnerable parties, including Equifax, of the Apache Struts vulnerability.
March 9 •Equifax shares
the alert internally, but fails to patch the vulnerability on its systems.
March 10 •An “entry
crew” first breaches Equifax’s systems. A more sophisticated team comes into set up over 30 entry points to Equifax.
March 15 •Equifax’s
follow-up scan does not identify that the vulnerability is unpatched.
May 13 •Hackers first
begin collecting PII.
July 29-30 •Equifax’s
security team first notices network traffic from the hackers and shuts down the app used by the hackers.
July 31 •Smith is
informed by the Chief Information Officer.
August 2 •Equifax retains
Mandiant, contacts its law firm and the FBI.
August 11 •The
investigation first discovers that hackers had been able to access numerous systems.
August 22 •Smith notifies
lead director Mark Feidler.
August 24- 25 •The full board
is notified by telephone.
September 1 •The board
meets to discuss the scale of the breach and Equifax’s response.
September 4 •Equifax
finalizes the initial list of 143 million consumers affected.
September 7 •Equifax
publicly announces the breach.
September 11 •The New
York attorney general launches the first of many investigatio ns into the breach.
September 15 •Equifax’s
CSO and CIO both resign.
September 18 •First public
reports that Equifax was breached in March.
September 26 •Smith
resigns as CEO.
October 2 •Equifax
confirms that an additional 2.5 million people had their data stolen.
October 3- 4 •Smith
testifies before several U.S. government committees.
October 10 •Equifax
announces that 10 million in total had driver’s license data stolen, 700,000 UK customers affected.
October 12 •The IRS
suspends a contract with Equifax following backlash.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
93
118-031 Data Breach at Equifax
20
Exhibit 9 Equifax’s Board of Directors
Name Director
Since Biography
Robert D. Daleo 2006 Retired vice chairman of Thomson Reuters and a board member at Citrix Systems. Previously the executive vice president and CFO of Thomson Reuters.
Walter W. Driver, Jr. 2007 Chairman- Southeast of Goldman, Sachs & Co and director at Total System Services, Inc. Previously the chairman of King & Spalding LLP.
Mark L. Feidler* 2007 Founding partner of Msouth Equity Partners and lead director at New York Life Insurance Company. Previously president and COO of BellSouth Corporation and COO of Cingular Wireless.
G. Thomas Hough* 2016 Former Americas vice chair of Ernst & Young LLP. Board member at Publix Super Markets Inc. and Federated Fund Family. Hough spent his entire career in Ernst & Young.
L. Phillip Humann 1992 Retired executive chairman of the board of SunTrust Banks, Inc. Humann was previously chairman and CEO of SunTrust Banks, as well as president of the company. Presiding director at Coca-Cola Enterprises, Inc. and lead director at Haverty Furniture Companies, Inc.
Robert D. Marcus 2013 Non-executive chairman at Ocelot Partners Limited. Former chairman and CEO of Time Warner Cable Inc. from 2014-2016, where he had served in various positions since 1998. Practiced law at Paul, Weiss, Rifkind, Wharton & Garrision prior to his time at Time Warner.
Siri S. Marshall 2006 Former senior vice president, general counsel, secretary, and chief governance and compliance officer at General Mills, Inc. Director at Ameriprise Financial, Inc., and former director at Alphatec Holdings, Inc., and BioHorizons, Inc.
John A. McKinley* 2008 CEO at SaferAging, Inc and co-founder of venture capital firm LaunchBox Digital. Former CTO of News Corporation, AOL Technologies, Merrill Lynch, and GE Capital Corporation. Also served as president of AOL digital services.
Richard F. Smith 2005 Chairman and CEO of Equifax. Served as COO of GE Insurance Solutions and president and CEO of GE Property and Casualty Reinsurance. Also served as president and CEO of GE Capital Fleet Services.
Elane B. Stock* 2017 Former group president, Kimberly-Clark International and director at YUM! Brands, Inc. Served in various senior leadership positions at Kimberly-Clark, as well as national vice president of strategy for the American Cancer Society and regional manager Georgia-Pacific’s Color-Box division.
Mark B. Templeton* 2008 Former CEO, president, and director of Citrix Systems, Inc, where he served as CEO from 1999–2015.
Source: 2017 Proxy Statement. Equifax, Inc., March 24, 2017.
Note: An asterisk (*) denotes membership of the technology committee. John A. McKinley served as the chair of the technology committee. Richard Smith served as chairman and CEO until his resignation on September 26, at which time Mark Feidler was appointed chairman. The board appointed former Broadcom CEO Scott McGregor to the board on October 26, 2017.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
94
Data Breach at Equifax 118-031
21
Exhibit 10 Charter for Equifax’s Technology Committee
I. Purpose
The purpose of the Technology Committee is to review and monitor the Company’s technology strategy and significant technology investments in support of its evolving global business needs. Areas of review include: information technology strategy; significant new product lines or technology investments; and the Company’s response to external technology-based threats and opportunities. In addition, the Committee will oversee the Company’s mitigation of any identified enterprise-wide risks in the above areas.
II. Members
The Committee shall consist of three or more directors appointed annually by the Board of Directors, and may include the Chairman of the Board and Chief Executive Officer. The following skills are particularly useful for the Committee members to have: familiarity and experience with technology products, development and marketing, and technology risk assessment.
III. Meetings
… The Committee will report its activities and findings to the Board on a regular basis.…
IV. Responsibilities and Duties
The goals and responsibilities of the Committee are to monitor the Company’s long-term strategy and significant investments in the areas listed below… The intervals for review of any given policy or program may be annual, biannual, or at longer or shorter intervals, depending upon the nature of the subject matter and developments affecting the Company with respect to that subject matter.
1. Information technology long-term strategy in support of the Company’s evolving global business needs.
2. Review and present observations to the Board with respect to the annual technology budget.
3. Significant new product development programs (including software initiatives) and new technology investments, including technical and market risks associated with product development and investment.
4. Future trends in technology that may affect the Company’s strategic plans, including overall industry trends and new opportunities and threats occasioned by new technologies, especially disruptive technologies.
5. Review the Company’s technology investments and infrastructure associated with risk management, including policies relating to information security, disaster recovery and business continuity.
6. Assess the scope and quality of the Company’s intellectual property.
7. Undertake from time to time such additional activities within the scope of the Committee’s primary purposes as it may deem appropriate and/or as assigned by the Board of Directors, the Chairman of the Board and Chief Executive Officer.
Source: Excerpted from: Committee Charters. Equifax, Inc., http://www.equifax.com/about-equifax/corporate- governance/committee-charters, accessed October 2017.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
95
118-031 Data Breach at Equifax
22
Exhibit 11 Change to Win Investment Group’s Proposals for Equifax’s Board
• Permanently separate the CEO and Chairman positions to provide better Board oversight of management.
• Replace the Chairman of the Audit Committee, Robert Daleo, and Chairman of the Technology Committee, John McKinley, as the directors with the responsibilities most germane to the current crisis and the Company’s inadequate response.
• Revise the Company’s clawback policy to allow the Board to recoup executive compensation for financial and reputational damage to the Company based not only on executive misconduct, but also supervisory failures, with disclosure to shareholders of any recoupment.
• Include legal claims, settlements, and costs related to the data breach in performance measures used to determine executive compensation.
• Have the Special Committee of directors formed in response to the data breach (a) evaluate the financial impact of the breach on the Company, (b) review the Company’s cybersecurity response plans, and (c) ensure that any future breaches are escalated to the Board level. The Company should also disclose to shareholders the Committee’s findings.
• Establish a multi-stakeholder advisory council specializing in data security and composed of outside issue-area experts and stakeholder advocates to address the public policy concerns related to the Company’s data security practices
Source: Letter to Richard F. Smith, Former Chairman and Chief Executive Officer, Equifax. Senator Elizabeth Warren, October 12, 2017.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
96
Data Breach at Equifax 118-031
23
Endnotes
1 “Company Profile.” Equifax, http://www.equifax.com/about-equifax/company-profile, accessed October 13, 2017.
2 This paragraph derives from: 2016 Annual Report. Equifax, Inc., February 22, 2017.
3 Ibid.
4 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 17, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019; “Equifax Inc. (NYSE: EFX) Transaction Summary > M&A/Private Placements,” S&P Capital IQ, accessed April 2019.
5 Michael Riley, Jordan Robertson, and Anita Sharpe, “The Equifax Hack Has the Hallmarks of State-Sponsored Pros.” Bloomberg Businessweek, September 29, 2017; “Richard (Rick) F Smith, Advisor (Current), Equifax Inc,” BoardEx, accessed April 2019.
6 “Bad Credit: Uncovering Equifax’s Failure to Protect Americans’ Personal Information.” Office of Senator Elizabeth Warren, February 2018.
7 Paragraph derives from: Michael Riley, Jordan Robertson, and Anita Sharpe, “The Equifax Hack Has the Hallmarks of State- Sponsored Pros.” Bloomberg Businessweek, September 29, 2017; “Anthony (Tony) W Spinelli, COO/Division President (Current), Fractal Industries Inc,” BoardEx, accessed April 2019.
8 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 7, 19, 61-62, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019; United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 35, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
9 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 62, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
10 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 62, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
11 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 7, 19, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
12 United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 36-43, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019; United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 64-65, https://republicans-oversight.house.gov/wp-content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
13 Paragraph derives from: Michael Riley, Jordan Robertson, and Anita Sharpe, “The Equifax Hack Has the Hallmarks of State- Sponsored Pros.” Bloomberg Businessweek, September 29, 2017.
14 Lorenzo Franceschi-Bicchierai, “Equifax Was Warned.” Vice, October 26, 2017.
15 Paragraph derives from: AnnaMaria Andriotis and Robert McMillan, “Equifax Security Showed Signs of Trouble Months Before Hack.” Wall Street Journal, September 26, 2017.
16 Equifax Inc. ESG Ratings Report. MSCI, Last updated February 16, 2018.
17 Michael Riley, Jordan Robertson, and Anita Sharpe, “The Equifax Hack Has the Hallmarks of State-Sponsored Pros.” Bloomberg Businessweek, September 29, 2017.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
97
118-031 Data Breach at Equifax
24
18 AnnaMaria Andriotis and Robert McMillan, “Hackers Entered Equifax Systems in March.” Wall Street Journal, September 20, 2017.
19 Paragraph derives from: Dan Goodin, “Critical vulnerability under “massive” attack imperils high-impact sites [Updated].” Ars Technica, March 9, 2017.
20 United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 8, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
21 Prepared Testimony of Richard F. Smith. Richard Smith, October 4, 2017.
22 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 2, 27, 29, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
23 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 29, 64-65, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
24 Prepared Testimony of Richard F. Smith. Richard Smith, October 4, 2017.
25 United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 37-40, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
26 United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 41-43, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
27 Paragraph derives from: Michael Riley, Jordan Robertson, and Anita Sharpe, “The Equifax Hack Has the Hallmarks of State- Sponsored Pros.” Bloomberg Businessweek, September 29, 2017.
28 United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 43-45, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019; United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 70-71, https://republicans-oversight.house.gov/wp-content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
29 Prepared Testimony of Richard F. Smith. Richard Smith, October 4, 2017; United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 46, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
30 Paragraph derives from: Prepared Testimony of Richard F. Smith. Richard Smith, October 4, 2017.
31 “Equifax Announces Cybersecurity Incident Involving Consumer Information.” Equifax, Inc., September 7, 2017.
32 Tara Siegel Bernard and Stacy Cowley, “Equifax Breach Caused by Lone Employee’s Error, Former C.E.O. Says.” New York Times, October 3, 2017.
33 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 52, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
98
Data Breach at Equifax 118-031
25
34 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 52, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
35 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 52, 63, 67, 71, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019; United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 36, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
36 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 52, 63, 66-67, 71, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
37 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 60-61, 69-74, 79-80, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
38 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 68-70, 76, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019; United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 22-23, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
39 United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 25-27, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
40 United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 25, 28, 30, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
41 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 7, 55-57, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
42 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 58, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
43 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 60, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
44 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 59-60, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
45 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 61-62, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
46 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 71-72, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
99
118-031 Data Breach at Equifax
26
47 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 77, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
48 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 78-79, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019
49 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 33-34, 70, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019; United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 43-44, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
50 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 33-35, 70, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019; United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 43-45, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
51 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 73, 76-77, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019; United States Senate: Committee on Homeland Security and Government Affairs, “How Equifax Neglected Cybersecurity and Suffered a Devastating Data Breach,” Staff Report, March 2019, p. 45-46, https://www.carper.senate.gov/public/_cache/files/5/0/508a6447-853f-4f41-85e8- 1927641557f3/D5CFA4A0FC19997FF41FB3A5CE9EB6F7.equifax-report-3.6.19.pdf, accessed March 2019.
52 United States House of Representatives: Committee on Oversight and Government Reform, “The Equifax Data Breach,” Majority Staff Report, December 2018, p. 77-78, https://republicans-oversight.house.gov/wp- content/uploads/2018/12/Equifax-Report.pdf, accessed January 2019.
53 “Equifax Announces Cybersecurity Incident Involving Consumer Information.” Equifax, Inc., September 7, 2017.
54 “Equifax Announces Cybersecurity Incident Involving Consumer Information.” Equifax, Inc., September 7, 2017.
55 Anders Melin, “Three Equifax Managers Sold Stock Before Cyber Hack Revealed.” Bloomberg, September 7, 2017.
56 Prepared Testimony of Richard F. Smith. Richard Smith, October 4, 2017.
57 “Equifax Announces Cybersecurity Incident Involving Consumer Information.” Equifax, Inc., September 7, 2017.
58 Dell Cameron, “Equifax Has Been Sending Consumers to a Fake Phishing Site for Almost Two Weeks.” Gizmodo, September 20, 2017.
59 “Bad Credit: Uncovering Equifax’s Failure to Protect Americans’ Personal Information.” Office of Senator Elizabeth Warren, February 2018.
60 Prepared Testimony of Richard F. Smith. Richard Smith, October 4, 2017.
61 “Bad Credit: Uncovering Equifax’s Failure to Protect Americans’ Personal Information.” Office of Senator Elizabeth Warren, February 2018.
62 Paragraph derives from: AnnaMaria Andriotis and Aaron Luchetti, “Consumers Blast Equifax’s Hack Response. Wall Street Journal, September 8, 2017.
63 Andrew Blake, “Equifax updates terms of service after arbitration clause causes uproar following massive breach.” The Washington Times, September 9, 2017.
64 AnnaMaria Andriotis and Aaron Lucchetti, “Consumers Blast Equifax’s Hack Response.” Wall Street Journal, September 8, 2017.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
100
Data Breach at Equifax 118-031
27
65 Prepared Testimony of Richard F. Smith. Richard Smith, October 4, 2017.
66 Paragraph derives from: “Bad Credit: Uncovering Equifax’s Failure to Protect Americans’ Personal Information.” Office of Senator Elizabeth Warren, February 2018.
67 Michael Riley, Anita Sharpe, and Jordan Robertson, “Equifax Suffered a Hack Almost Five Months Earlier Than the Date It Disclosed.” Bloomberg, September 18, 2017.
68 Michael Riley, Anita Sharpe, and Jordan Robertson, “Equifax Suffered a Hack Almost Five Months Earlier Than the Date It Disclosed.” Bloomberg, September 18, 2017.
69 Stacy Cowley, “2.5 Million More People Potentially Exposed in Equifax Breach.” New York Times, October 2, 2017.
70 AnnaMaria Andriotis and Emily Glazer, “Equifax Hack Disclosed Driver’s License Data for More Than 10 Million Americans.” Wall Street Journal, October 10, 2017.
71 Caroline Binham, “Equifax says nearly 700,000 UK customers may have had details stolen in hack.” Financial Times, October 10, 2017.
72 “Bad Credit: Uncovering Equifax’s Failure to Protect Americans’ Personal Information.” Office of Senator Elizabeth Warren, February 2018.
73 Paragraph derives from: Michael Riley, Jordan Robertson, and Anita Sharpe, “The Equifax Hack Has the Hallmarks of State- Sponsored Pros.” Bloomberg Businessweek, September 29, 2017.
74 Stephen Gandel, “Equifax Board Needs a Security Dream Team.” Bloomberg Gadfly, September 21, 2017.
75 Notice of 2017 Annual Meeting and Proxy Statement. Equifax, Inc., March 24, 2017, p. 14.
76 Jennifer Surane and Anders Melin, “Equifax CEO Richard Smith Resigns After Uproar Over Massive Hack.” Bloomberg, September 26, 2017.
77 Jennifer Surane and Anders Melin, “Equifax CEO Richard Smith Resigns After Uproar Over Massive Hack.” Bloomberg, September 26, 2017.
78 Emily Glazer and AnnaMaria Andriotis, “Equifax Board Considers Clawing Back Executives’ Compensation; Directors have been discussing best approach for clawbacks.” Wall Street Journal, September 29, 2017.
79 Elizabeth Dexheimer, “Equifax Forms Panel to Review Executives’ Share Sales.” Bloomberg, September 29, 2017; AnnaMaria Andriotis and Emily Glazer, “At the Center of the Equifax Mess: Its Top Lawyer.” Wall Street Journal, October 1, 2017.
80 “Equifax Names Scott McGregor as New Independent Director.” Equifax, October 26, 2017.
81 “Equifax Board Releases Findings of Special Committee Regarding Stock Sale by Executives.” Equifax, November 3, 2017.
82 Jaclyn Jaeger, “New York AG launches formal investigation into Equifax breach.” Compliance Week, September 11, 2017.
83 Dustin Volz and Susan Heavey, “FTC probes Equifax; top Democrat likens it to Enron.” Reuters, September 14, 2017.
84 AnnaMaria Andriotis, “Massachusetts Attorney General Hits Equifax With Suit Over Hack.” Wall Street Journal, September 19, 2017.
85 Sarah Buhr, “San Francisco sues Equifax on behalf of 15 million Californians affected by the breach.” Techcrunch, September 27, 2017.
86 Dustin Volz and Susan Heavey, “FTC probes Equifax; top Democrat likens it to Enron.” Reuters, September 14, 2017.
87 “Warren Launches Investigation into Equifax Breach with Letters to Equifax, TransUnion, Experian, FTC, CFPB, GAO.” Office of Senator Elizabeth Warren press release, September 15, 2017.
88 “Warren Launches Investigation into Equifax Breach with Letters to Equifax, TransUnion, Experian, FTC, CFPB, GAO.” Office of Senator Elizabeth Warren press release, September 15, 2017.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
101
118-031 Data Breach at Equifax
28
89 Freedom from Equifax Exploitation Act. September 15, 2017, p. 1.
90 Paragraph derives from: Jeff Cox, “Big changes coming for credit firms in wake of Equifax hack, CFPB director says.” CNBC, September 27, 2017.
91 Letter to Equifax chairman Mark Feidler. Dieter Waizenegger, Executive Director of Change to Win Investment Group, October 18, 2017.
92 Paragraph derives from: Letter to Equifax chairman Mark Feidler. Dieter Waizenegger, Executive Director of Change to Win Investment Group, October 18, 2017.
93 Paragraph derives from: Michael Rapoport and AnnaMaria Andriotis, “States Push Equifax to Explain Why It Took 6 Weeks to Disclose Hack.” Wall Street Journal, October 28, 2017.
94 Derives from: Stacy Cowley, “Equifax Faces Mounting Costs and Investigations From Breach.” New York Times, November 9, 2017.
95 “2017 Internet Crime Report,” Federal Bureau of Investigation Internet Crime Complaint Center, May 7, 2018, p. 20, https://pdf.ic3.gov/2017_IC3Report.pdf, accessed April 2019.
96 “Cisco 2018 Annual Cybersecurity Report,” Cisco Systems, Inc., February 6, 2018, p. 50-51, https://www.cisco.com/c/dam/m/hu_hu/campaigns/security-hub/pdf/acr-2018.pdf, accessed April 2019.
97 Kevin A. Hassett, Richard V. Burkhauser, and Tomas J. Philipson, “The Annual Report of the Council of Economic Advisers,” Council of Economic Advisers, Executive Office of the President, February 21, 2018, p. 333-334, https://www.whitehouse.gov/wp-content/uploads/2018/02/ERP_2018_Final-FINAL.pdf, accessed April 2019.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
102
8.
9B17M115
ORGANIGRAM: NAVIGATING THE CANNABIS INDUSTRY WITH “GREY KNOWLEDGE” Opal Leung wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2017, Richard Ivey School of Business Foundation Version: 2017-08-09
From our strategic point of view, we are interested in jumping into the recreational marketplace just because of its size and breadth . . . we expect ourselves and most of the LPs [licensed
producers] will probably play on both sides of the fence, medicinal and recreational . . . assuming, and I’m sure that it will, that the medicinal marketplace will continue to thrive, even when the
recreational marketplace comes forward.
Larry Rogers, chief operating officer, OrganiGram On December 1, 2016, the Task Force on Cannabis Legalization and Regulation (the Task Force) released its final report.1 It was the result of a long process of consulting with many stakeholders, including patients, various levels of government, and experts across Canada and the United States. The Task Force was assembled in June 2016, soon after the Trudeau government announced (on April 20, 2016) that legislation to legalize recreational cannabis would be introduced in the spring of 2017 with the intention of having it become law in the spring of 2018. Several cannabis companies, including OrganiGram Holdings Inc., Canopy Growth Corporation, Aphria Medical Marijuana, Mettrum Ltd., and Aurora Cannabis Inc., had already been supplying medical cannabis to patients in Canada. The size of the recreational market was predicted to be approximately $5 billion2 and up to $22.6 billion if including the ancillary market (e.g., testing labs, security, and paraphernalia).3 With the potential to sell its product to this new market, the New Brunswick-based cannabis company OrganiGram had already begun to prepare for expansion into the recreational market, even before the government’s announcement was made.4 However, there were still several unknowns that made the cannabis industry’s environment ambiguous. What would the timeline for legalization be? Who would be allowed to grow cannabis and how much? Would there be any safety regulations to ensure that customers would receive safe recreational products? Would there be regulations for drivers who medicated with and drove under the influence of cannabis? Which part of the Task Force report recommendations would actually become a reality? From a marketing perspective, if the current cannabis companies were known as providers of pharmaceutical-grade cannabis, was it possible to adjust their brand to attract recreational users? If so, how would they do it? According to OrganiGram chief operating officer Larry Rogers, several F
or u
se o
nl y
in th
e co
ur se
C on
te m
po ra
ry Is
su es
in B
us in
es s:
A C
as e
a t Y
or kv
ill e
U ni
ve rs
ity ta
ug ht
b y
V ar
io us
P ro
fe ss
or s
fr om
O ct
ob er
1 1,
2 01
9 to
O ct
ob er
1 1,
2 02
2.
U se
o ut
si de
th es
e pa
ra m
et er
s is
a c
op yr
ig ht
v io
la tio
n.
103
Page 2 9B17M115 decisions had to be made based on “grey knowledge.” Even though the Task Force had released its report, it was still unclear which suggestions the federal government would adopt. CANNABIS REGULATIONS IN CANADA The Marihuana for Medical Purposes Regulations (MMPR) were enacted under the Controlled Drugs and Substances Act in July 2013. Before the MMPR, the Marihuana Medical Access Regulations, enacted in 2001 and repealed in 2013, allowed patients to grow their own cannabis plants or have someone grow the plants for them. The MMPR was an attempt to control the production and distribution of medical cannabis, with licensed producers (LPs) being the only companies authorized by Health Canada to cultivate and/or sell dried cannabis to patients who had prescriptions. The application process was very rigorous and, as a result, a low percentage of applicants were granted licences. As of August 1, 2016, 1,561 applications had been received, 253 had been refused, 419 were in progress, 54 had been withdrawn, and 801 were incomplete.5 As of December 28, 2016, only 37 licences had been issued, with most of them in Ontario (22) and British Columbia (8). Some companies had more than one licence, which meant that they had more than one site because each licence was location-specific. Patients could legally register and buy their medical cannabis at only one LP for each prescription. A subset of the LPs also had licences to produce and/or sell fresh cannabis seeds or cuttings and cannabis oil, with some companies holding more than one licence. Twenty-two licences for producing and/or selling cannabis oil were held by only 18 companies. The authorization to produce and sell oils and fresh plant material meant that companies could create and sell other products, such as cloned strains (clones) of cannabis (i.e., starter plants). LPs were required to keep detailed records of all cannabis received (including the name of the seller, the date and place of the transaction, and a full description of the product). In the Task Force report,6 one of the recommendations was to implement a seed-to-sale tracking system. The oils made by LPs were better for dosing than homemade oils because the amount of tetrahydrocannabinol (THC) and/or cannabidiol (CBD) could not be clearly determined in the latter. For example, when a patient smoked a joint made from dried cannabis, it was unclear how much THC was being inhaled. However, when using cannabis oil, the dosage was measured by volume. When the Access to Cannabis for Medical Purposes Regulations (ACMPR) was passed in August 2016, patients were once again allowed to grow their own cannabis plants. Some LPs started selling clones to patients.7 The ACMPR permitted companies to sell oil in a “capsule or similar dosage form” but not edibles— marijuana infused food products. OrganiGram was still in the research and development stage of capsule production. However, the ACMPR allowed patients to “alter the chemical or physical properties of the fresh or dried marihuana or cannabis oil,” meaning that patients could make their own edibles.8 OrganiGram patients received a copy of Aunt Sandy’s Medical Marijuana Cookbook9 as part of their client welcome kit. OrganiGram was the only LP on Canada’s east coast that had licences to cultivate (i.e., grow and process) dried cannabis, produce fresh cannabis and cannabis oil, and sell all of these products. The first few LP licences were granted in 2013.10 Its licences permitted it to produce up to 1,500 kilograms of dried cannabis and 500 kilograms of cannabis oil and sell up to 1,200 kilograms of dried cannabis and 500 kilograms of cannabis oil per year, within Canada.11 Also, medical cannabis plant cuttings and dried buds could be sold and shipped to other LPs on a wholesale basis. The only other LP in the Maritimes was Canada’s Island Garden Inc. (CIGI) in Prince Edward Island. However, CIGI had a licence only to cultivate dried cannabis.12 OrganiGram received its licence to cultivate dried cannabis on March 26, 2014, and received its oil licence on July 23, 2016. CIGI was licensed to
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
104
Page 3 9B17M115 cultivate dried cannabis on June 16, 2016. The first licences to produce and sell cannabis oils were granted in the summer of 2015.13 ORGANIGRAM COMPANY BACKGROUND OrganiGram was founded in 2013 in Moncton, New Brunswick. In 2014, there were only approximately 17 staff members. The company employed 70 people as of December 2016, and it was looking forward to expanding its workforce up to about 170 staff in the next year or two to staff its new and expanding facilities. The organizational structure consisted of three levels: the C-suite (i.e., chief executive officer, chief operating officer, chief financial officer, and chief commercial officer), directors, and employees in various functions (e.g., garden workers and client support). Its facilities consisted of a main facility, a newly acquired building next to the main facility, and the adjoining 10-acre (4.1-hectare) property with a 136,000- square-foot (12,635-square-metre) industrial building. In addition to being the first medical cannabis company in the Maritimes to be licensed to grow and sell medical cannabis, it was a certified organic medical cannabis producer. This organic certification meant that it needed to follow more rules than most of its competitors. Canada had only three organic LPs.14 Organigram was the only Maritime cannabis company with licences to cultivate, produce, and sell cannabis products. In a Canadian Broadcasting Corporation report, it was announced that at the end of March 2016, the New Brunswick government awarded payroll rebates of up to $990,000 over three years to OrganiGram to help create up to 113 new jobs in the province.15 Chief executive officer Denis Arsenault stated, “We are from New Brunswick and we’re excited to invest at home, where the advantages of a well-educated work force, low power rates and a competitive cost of living make New Brunswick and Moncton a logical place for our future.”16 In the summer of 2016, OrganiGram purchased a new building in Moncton. In an interview published on October 25, 2016, chief commercial officer Ray Gracewood stated that much of the space in the new facility in Moncton would be for the manufacturing of edibles and extracts.17 To finance its expansion plans, OrganiGram announced the closing of a $40 million bought deal on December 7, 2016, to finance an expansion of its existing facility for an additional 32,000 square feet (2,973 square metres) of grow-room area and continue with its planned cannabis oil extracts and derivatives facility.18 In this bought deal, a group of investment firms (led by Dundee Securities Ltd.) offered $40,253,450 for 11,339,000 shares at a price of $3.55 per share to OrganiGram.19 THE PROCESS OF PRODUCING CANNABIS PRODUCTS The process of growing and processing cannabis started with purchasing and receiving materials such as soil and fertilizers. Cuttings taken from mother plants were started in the nursery to grow clones, which were put into pots of soil for the pre-vegetative (pre-veg) process. The process of growing plants from clones had two benefits: (1) it took less time than growing from seeds and (2) it ensured that the plants would have the same characteristics as the mother plant. The pre-veg process took several weeks, as did the vegetative process, which began when the plants were set into larger pots. Next, the plants were placed in grow rooms for the flowering stage, which took 56–72 days. After harvesting, the cannabis was trimmed, dried, cured, and packaged for mailing to patients. OrganiGram had produced and posted a YouTube video that described the growing process.20 According to Rogers, it could take over six months from starting the clones to packaging the final product. Under the ACMPR, LPs were permitted to sell cannabis products only to patients directly through mail order or to other LPs on a wholesale basis.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
105
Page 4 9B17M115 ORGANIGRAM’S EXISTING PRODUCT LINES OrganiGram differentiated itself by highlighting that some of its products were premium, 100 per cent organic, which meant that they were subject to audits, were grown in regulated soil, received organic fertilizers, and were free of certain disallowed pesticides. These standards were in addition to the Health Canada regulations. OrganiGram received its organic certification from ECOCERT on October 10, 2014.21 Many of OrganiGram’s strains had Maritime-themed names, such as Highlands, Rising Tides, and Lighthouse. The price of the dried cannabis ranged from $9.25 to $10.50 per gram. Daily dosages for patients ranged from 75 milligrams per day to 3.2 grams per day.22 According to the ACMPR, the possession limit was 30 times the daily dosage, or 150 grams, whichever was less. However, OrganiGram offered a 25 per cent discount to patients who were on social assistance or disability programs. Competitors also had compassionate-pricing programs. OrganiGram oils were all priced at $99 per 50 millilitres. The oils had different names from their dried plant strain names and were labelled with the amounts of THC and CBD in milligrams or millilitres. Depending on each patient’s needs, the choice would be made according to the amount of THC and/or CBD in the product. In addition to its cannabis products, OrganiGram sold vaporizers that ranged in price from $97.50 to $195. COMPETITORS In 2016, Canada’s largest publicly traded LPs were Canopy Growth, Mettrum, OrganiGram, Aphria, and Aurora Cannabis. The first four companies had licences to cultivate the dried plant, produce oils, and sell both products. Aurora had licences only to cultivate the dried plant and sell it. However, Aurora was enrolling new patients very quickly in a short period of time.23 In terms of licensed capacity and resources, Canopy Growth was the largest player and was the result of a merger of the companies Tweed and Bedrocan. Tweed had a branding partnership with Snoop Dogg.24 Canopy Growth was working on international expansion activities in Brazil, Australia, and Germany.25 Mettrum was very much a medically focused company that concentrated on building a physician’s network to increase its patient base. On December 1, 2016, it was announced that Mettrum would be acquired by Canopy Growth, pending shareholder approval.26 Many LPs were in the process of increasing the number of registered patients while expanding their operations. The prices for most dried cannabis strains tended to be between $6 and $12 per gram.27 Several companies, including OrganiGram, offered “compassionate pricing” (i.e., a discounted price) for those patients in need. Strains with higher percentages of THC often were able to garner higher prices. THE AMERICAN EXPERIENCE (WITH RECREATIONAL CANNABIS) Colorado and several other American states had already legalized recreational cannabis. Data from the cannabis data firm Headset Inc. Cannabis Intelligence provided sales data on the most popular recreational cannabis products in the United States.28 The dried flower was the most popular product (48 per cent of all transactions) but had the lowest profit margin (53.5 per cent on average). The second most popular product was edibles (13.1 per cent of all transactions), and some types had the highest profit margins (ranging from 53 per cent for soup to 65.5 per cent for brittle). Concentrates, beverages, and vapour products were also becoming more popular.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
106
Page 5 9B17M115 According to a 2016 report by the Rocky Mountain High Intensity Drug Trafficking Area on marijuana in Colorado, the established demand in 2014 was 121.4 metric tons for residents (aged 21 years and older) and the estimated demand was 8.9 metric tons for out-of-state visitors (aged 21 years and older). The same report noted 485,000 regular users of cannabis in Colorado. The total population of Colorado was 5.36 million.29 Based on data collected on approximately 40,000 legal (recreational) cannabis purchases, cannabis users spent an average of US$647 annually in Washington State.30 Thousands of jobs and millions of dollars collected in taxes were reported in Colorado.31 According to Rogers, Colorado “is like the gold standard for recreational marijuana in the world. It’s the only place of size that has had a recreational marketplace for more than a short period of time . . . at least they have some quantifiable data that you can try and use to project forward.” However, regulations were very different in the United States and varied from state to state. For example, the state law in Colorado permitted licensed retailers to sell only up to 30 per cent of their total “finished Retail Marijuana inventory” to other licensed establishments.32 Because marijuana was still illegal at the federal level, it was difficult for American cannabis businesses to open bank accounts and many used only cash transactions. CHALLENGES In September 2016, OrganiGram partnered with TGS International LLC,33 a firm in Colorado that had experience with manufacturing and selling edibles, which were not yet legal to sell in Canada. According to Rogers, the TGS partnership was meant to help OrganiGram “spin up” its edible-marijuana manufacturing facilities in Moncton quickly. Soon after, in a press release dated November 23, 2016, OrganiGram announced, “Trailer Park Boys Choose OrganiGram as Strategic Partner.”34 However, in mid- December 2016, the Task Force on Cannabis Legalization and Regulation completed and released its report, which included many recommendations.35 For the purpose of minimizing the harm of use, the Task Force recommended that the federal government “apply comprehensive restrictions to the advertising and promotion of cannabis and related merchandise by any means, including sponsorship, endorsements and branding, similar to the restrictions on promotion of tobacco products.”36 The Task Force also recommended that recreational products not be packaged in such a way that it would be appealing to children. With that in mind, what kinds of edibles would be permitted? The challenge was that OrganiGram was “deploying fairly substantive amounts of capital and not knowing exactly what the date is that that capital should be fully functioning,” according to Rogers. Other LPs, such as Canopy Growth and Aurora Cannabis, were also preparing for the recreational market by developing strategic partnerships and raising capital to expand their operational capacities. On the medical side, the total number of patients who could legally purchase medical marijuana was limited by the number of physicians who were willing and able to prescribe cannabis. Many of the cannabis clinics were in Ontario and Western Canada, where most of the LPs were located. However, some clinics had satellite offices in Atlantic Canada. According to Rogers, many physicians were uncomfortable with prescribing cannabis to their patients and had to refer them to cannabis clinics. However, the market data found on Health Canada’s website showed that the number of patients was increasing each quarter (see Exhibit 1). Even with these data and OrganiGram’s enterprise resource planning systems, it was difficult to make forecasts because one did not know which companies the patients would choose. NEXT STEPS The largest players (including OrganiGram) in the medical cannabis industry were in the midst of expanding their operations in anticipation of the introduction of the Trudeau government’s recreational cannabis
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
107
Page 6 9B17M115 legislation in the spring of 2017. In addition to its domestic expansion activities, Canopy Growth, the largest publicly traded cannabis company in Canada, was already engaging in several international expansion activities in Brazil, Germany, and Australia. However, Rogers said that there was a shortage of product in Canada at that point in time and OrganiGram did not have any immediate plans to export cannabis. Its focus was on the current medical cannabis market and the anticipated recreational market in Canada. From Rogers’s perspective, it was unclear when the company could roll out new products, which products would be permitted, or who would be allowed to produce and/or sell recreational cannabis products. The challenge for OrganiGram was to work with the “grey knowledge” while creating a strategy for the anticipated recreational cannabis market and working on its medical cannabis sales. What kind of strategy should OrganiGram have for the recreational cannabis market? How should it organize the company to market both medical and recreational cannabis? Would the legalization of recreational cannabis lead to regulations that allowed for imported cannabis? With so many variables still unknown, what kinds of scenarios should OrganiGram prepare to face? Was it possible to create an implementation plan with a timeline, roll out schedule, and initial steps that would take into account the different scenarios?
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
108
Page 7 9B17M115
EXHIBIT 1: MARKET DATA ON CANADA’S QUARTERLY SUPPLY OF CANNABIS FOR MEDICAL PURPOSES, APRIL 2015–SEPTEMBER 30, 2016
Apr. 1,
2015– June 30, 2015 (Q1)
July 1, 2015– Sep. 30, 2015 (Q2)
Oct. 1, 2015– Dec. 31, 2015 (Q3)
Jan. 1, 2016– Mar. 31, 2016 (Q4)
Apr. 1, 2016– June 30, 2016 (Q1)
July 1, 2016– Sep. 30, 2016 (Q2)
Dried Marijuana Amount sold to clients (in kg)
1,371 1,873 2,481 3,082 4,037 4,773
Amount produced 1,867 2,142 2,684 4,037 5,014 5,734
Amount in inventories of LPs at end of quarter (in kg)
5,445 7,312 9,729 10,695 11,788 13,246
Cannabis Oil Amount sold to clients (in kg)
N/A N/A 3 584 1,500 2,420
Amount produced N/A 9 128 892 1,654 3,116
Amount in inventories of LPs at end of quarter (in kg)
N/A 7 208 1,421 2,038 3,330
Client Data Average amount authorized per client (g/day)
3.3 3 2.9 2.8 2.7 2.6
Average amount per client shipment (g/day)
1.08 1.12 1.12 1.03 0.96 0.89
Total number of registered clients at end of quarter
23,930 30,537 39,668 53,649 75,166 98,460
Note: Q = quarter; kg = kilogram; g = gram; LPs = licensed producers; N/A = not available Source: Government of Canada, “Market Data,” accessed December 28, 2016, www.canada.ca/en/health- canada/services/drugs-health-products/medical-use-marijuana/licensed-producers/market-data.html.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
109
Page 8 9B17M115 ENDNOTES
1 The terms “cannabis,” “marijuana,” and “marihuana” all refer to various forms (dried or fresh) of the cannabis plant. Government of Canada, A Framework for the Legalization and Regulation of Cannabis in Canada: The Final Report of the Task Force on Cannabis Legalization and Regulation (November 30, 2016), accessed December 28, 2016, www.healthycanadians.gc.ca/task-force-marijuana-groupe-etude/framework-cadre/index-eng.php. 2 All currency amounts are in Canadian dollars unless otherwise specified. 3 Peter Koven, “Canada’s Budding Marijuana Industry Could Blossom into a $5-Billion Market If Liberals Make Recreational Pot Legal,” Financial Post, October 20, 2015, accessed December 28, 2016, http://business.financialpost.com/news/agriculture/ canadian-marijuana-stocks-jump-as-liberal-wins-signals-legalization-on-the-table; Robert Benzie, “Recreational Weed Could Be a $22.6B Industry: Study,” thestar.com, October 27, 2016, accessed December 28, 2016, https://www.thestar.com/news/queenspark/ 2016/10/27/recreational-weed-could-be-a-226b-industry-study.html. 4 “From the President’s Desk,” OrganiGram Holdings Inc., January 14, 2016, accessed June 13, 2017, https://www.organigram.ca/latest/from-the-presidents-desk. 5 Government of Canada, “Application Process: Becoming a Licensed Producer of Cannabis for Medical Purposes,” accessed October 6, 2016, www.canada.ca/en/health-canada/services/drugs-health-products/medical-use-marijuana/licensed- producers/application-process-becoming-licensed-producer.html. 6 Government of Canada, A Framework for the Legalization and Regulation of Cannabis in Canada: The Final Report of the Task Force on Cannabis Legalization and Regulation, op. cit. 7 THC BioMed was one of the companies to sell clones. “THC BioMed,” accessed July 12, 2017, http://thcbiomed.com. 8 Government of Canada, “Access to Cannabis for Medical Purposes Regulations (SOR/2016-230),” Justice Laws website, accessed December 28, 2016, http://laws.justice.gc.ca/eng/regulations/SOR-2016-230/page-10.html#h-16. 9 Sandy Moriarty, Aunt Sandy’s Medical Marijuana Cookbook (Piedmont, CA: Quick American Publishing, 2010). 10 Government of Canada, “Authorized Licensed Producers of Cannabis for Medical Purposes,” accessed May 1, 2017, www.canada.ca/en/health-canada/services/drugs-health-products/medical-use-marijuana/licensed-producers/authorized- licensed-producers-medical-purposes.html. 11 OrganiGram Holdings Inc., Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”): For the Year Ended August 31, 2016, accessed December 28, 2016, https://www.organigram.ca/assets/ financials/Organigram-Holdings-Inc-MDA-Aug-31-2016.pdf. 12 Government of Canada, “Authorized Licensed Producers of Cannabis for Medical Purposes,” op. cit. 13 Data shown in Exhibit 1 shows that cannabis oil production started in the summer of 2015. 14 OrganiGram Holdings Inc., op. cit. 15 “OrganiGram Gets $990k from New Brunswick Government,” CBC News, March 30, 2016, accessed December 28, 2016, www.cbc.ca/news/canada/new-brunswick/organigram-marijuana-funding-brunswick-1.3512416. 16 Ibid. 17 Cherise Letson, “New Brunswick’s OrganiGram Preparing to Light Up Recreational Market,” Huddle, October 25, 2016, accessed December 28, 2016, http://huddle.today/new-brunswicks-organigram-preparing-light-recreational-market. 18 “OrganiGram Announces Closing of $40M Bought Deal Financing,” Marketwired, December 7, 2016, accessed June 13, 2017, www.marketwired.com/press-release/organigram-announces-closing-of-40m-bought-deal-financing-tsx-venture-ogi-2181471.htm. 19 Ibid. 20 “Inside the Organigram Garden,” YouTube video, 2:38, posted by “Civilized,” July 26, 2016, accessed December 28, 2016, https://www.youtube.com/watch?v=Oh-62nDtJFM. 21 “OrganiGram Receives Organic Certification for Medical Marijuana Growing Process,” Marketwired, October 14, 2014, accessed June 13, 2017, www.marketwired.com/press-release/organigram-receives-organic-certification-for-medical- marijuana-growing-process-tsx-venture-ogi-1957140.htm. 22 Government of Canada, “Access to Cannabis for Medical Purposes Regulations—Daily Amount Fact Sheet (Dosage),” July 2016, accessed July 12, 2017, www.canada.ca/en/health-canada/services/drugs-health-products/medical-use- marijuana/information-medical-practitioners/marihuana-medical-purposes-regulations-daily-amount-fact-sheet-dosage.html. 23 “Operational Update: Aurora’s CanvasRx Subsidiary Surpasses 13,000 Patients Registered,” CNW, November 10, 2016, accessed June 13, 2017, www.newswire.ca/news-releases/operational-update-auroras-canvasrx-subsidiary-surpasses- 13000-patients-registered-600664531.html. 24 “Tweed Rolls Out Leafs by Snoop Cannabis Brand,” CBC News, October 6, 2016, accessed December 28, 2016, www.cbc.ca/news/canada/ottawa/tweed-leafs-by-snoop-brand-launch-1.3793667. 25 Canopy Growth Corporation, Annual Meeting of Shareholders, September 15, 2016, accessed December 28, 2016, https://cdn.shopify.com/s/files/1/0994/1238/files/160915_2016_Canopy_Growth_Corporation_AGM_Presentation_FINAL.pdf ?3923008218010883461. 26 Sunny Freeman, “Canopy Growth Corporation to Acquire Mettrum for $430M—Making a Mega-Company Serving Half Canada’s Medical Pot Users,” Financial Post, December 1, 2016, accessed December 28, 2016, http://business.financialpost.com/news/agriculture/canopy-grow-to-acquire-rival-mettrum-for-430-million-to-form-mega- company-serving-half-canadas-medical-pot-users. 27 Brad Martin, “The Cost of Medical Cannabis in Canada,” Lift News, August 4, 2016, accessed December 28, 2016, https://news.lift.co/the-cost-of-medical-cannabis-in-canada. 28 “What Are the Most Popular Cannabis Products?” Headset, June 29, 2016, accessed December 28, 2016, http://headset.io/blog/what-are-the-most-popular-cannabis-products.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
110
Page 9 9B17M115 29 Rocky Mountain High Intensity Drug Trafficking Area, The Legalization of Marijuana in Colorado: The Impact Vol. 4 (September 2016), accessed January 18, 2017, www.rmhidta.org/html/2016%20FINAL%20Legalization%20of%20 Marijuana%20in%20Colorado%20The%20Impact.pdf. 30 Polly Mosendz, “The Average Legal Pot User Spends $647 a Year on Weed,” Bloomberg, July 26, 2016, accessed December 28, 2016, www.bloomberg.com/news/articles/2016-07-26/the-average-legal-pot-user-spends-647-a-year-on-weed. 31 Joshua Miller, “In Colo., a Look at Life after Marijuana Legalization,” The Boston Globe, February 22, 2016, accessed December 28, 2016, https://www.bostonglobe.com/metro/2016/02/21/from-colorado-glimpse-life-after-marijuana-legalization/ rcccuzhMDWV74UC4IxXIYJ/story.html. 32 Code of Colorado Regulations, Retail Marijuana Rules, 1 CCR 212-2, 76, accessed December 28, 2016, https://www.colorado.gov/pacific/sites/default/files/Current%20Official%20Retail%20Marijuana%20Rules%20- %20Effective%2007012016.pdf. 33 “OrganiGram Enters Exclusive Partnership for Oils, Extracts and Edibles,” Marketwired, September 1, 2016, accessed December 28, 2016, www.marketwired.com/press-release/organigram-enters-exclusive-partnership-for-oils-extracts-and- edibles-tsx-venture-ogi-2154846.htm. 34 “Trailer Park Boys Choose OrganiGram as Strategic Partner,” Marketwired, November 23, 2016, accessed December 28, 2016, www.marketwired.com/press-release/trailer-park-boys-choose-organigram-as-strategic-partner-2178120.htm. 35 Government of Canada, A Framework for the Legalization and Regulation of Cannabis in Canada: The Final Report of the Task Force on Cannabis Legalization and Regulation, op. cit. 36 Ibid.
F or
u se
o nl
y in
th e
co ur
se C
on te
m po
ra ry
Is su
es in
B us
in es
s: A
C as
e a
t Y or
kv ill
e U
ni ve
rs ity
ta ug
ht b
y V
ar io
us P
ro fe
ss or
s fr
om O
ct ob
er 1
1, 2
01 9
to O
ct ob
er 1
1, 2
02 2.
U
se o
ut si
de th
es e
pa ra
m et
er s
is a
c op
yr ig
ht v
io la
tio n.
111
NOTICE REGARDING COPYRIGHT This custom course package contains intellectual property that is protected by copyright law. It is illegal to copy the material within this package without the written consent of the holder(s) of the copyright. This material has been copied under licence from Access Copyright or with permission from the copyright owner. Resale or further copying of anything in this package is strictly prohibited.
Unless otherwise stated, Copyright © Ivey Business School Foundation.
www.iveycases.com
- Contemporary Issues in Business: A Case Approach
- Student Guide to the Case Method: Note 2— Performing a Case Analysis
- Student Guide to the Case Method: Note 4—Preparing a Written Case Report
- Brand W: Strategizing for Omni-Channel Retail
- WestJet: A New Social Media Strategy
- The Panic of 2008 and Brexit: Regional Integration versus Nationalism
- Data Breach at Equifax
- OrganiGram: Navigating the Cannabis Industry with Grey Knowledge
