William McRay, project manager for the Consumer Packaging Group at Westfield, Inc. had just begun work on the 1988 Strategic Plan for the frozen concentrate juice business segment. These juices were currently packed in Westfield's traditional line of containers. However, this traditional line was being threatened by a host of alternative packaging technologies. Westfield had already experienced the painful effects of substitution when its largest segment of traditional container users switched to a new-material container in 1986. Bill wanted to do whatever was necessary to anticipate and minimize the negative effects of this substitution trend as it related to the frozen concentrate juice segment.
Westfield had recently licensed a new container technology called Formatek. The company's exclusive rights to this revolutionary process could provide Westfield with an answer to the substitution threat and a sustainable competitive advantage. But the technology was expensive, and there was no guarantee that the powerful customers within the frozen concentrate juice market would adopt the new containers. On the other hand, failure to innovate on Westfield's part could cause a reversal of fortunes for this container manufacturer that had been able to maintain a 13 percent compound annual growth rate over the last three years.
Founded in 1903 in Georgia, Westfield began as a manufacturer of disposable paper cones for the growing textile industry. In its first year of operations, it generated sales of $17,000 and profits of $2000. The company projected sales of $739.6 million and net income of $42.4 million for the end of the current fiscal year, 1987, and employed more than 10,000 persons throughout the U.S. (see Exhibits 1 and 2 for recent financial data).
While Westfield had previously been considered Strictly a paper company, acquisitions and internal developments transformed the firm into a packaging company. In fact, paper cones, once the company's mainstay, by 1987 represented only 5 percent of the business. Westfield was the leading manufacturer of paper tubes for the paper industry, the third largest manufacturer of traditional containers, and one of the country's largest users of waste paper.
When evaluating new projects, Westfield used an IRR analysis and required a 15 percent after-tax return on investment. Pricing for all new products was expected to cover the following costs: variable manufac-
•Copyright ©1987 by the Darden Graduate Business School Foundation, Charlottesville, Va.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.