Case 6: Connor Formed Metal Products

Transcription

1 Case 6: Connor Formed Metal Products Benjamin T. Spalding CIS 410 3/23/2017

2 1 Problem Statement Bob Sloss is trying to implement a strategy of differentiation in a cost leadership market. It says that shipments rose from under $8 million in 1982 to $17 million in 1988 that the profit does not increase accordingly. This is because Sloss is increasing costs, selling to the customer at market price and eating the costs in the profit. In addition, shipments are at around $16.5 but they are losing money. ICA Mission Statement Connor Formed Metal Products has the highest quality of custom metal spring and stampings with great customer service to large companies such as Honeywell, Motorola, and HP as well as small companies alike all over the USA. Connor Formed Metal Products uses a hands off divisional structure. Porter s Five Forces The first force in Porter s five forces is the bargaining power of suppliers. Suppliers are the businesses who supply Connor Formed Metal Products with the metal to make their metal springs and stampings. These suppliers are selling metal to Connor Formed Metal Products and since metal is a commodity the suppliers are operating in a perfectly competitive market. What is known about perfectly competitive markets is that the bargaining power of those who operate in them is zero. Therefore, Connor Formed Metal Products suppliers have very little bargaining power. The second force in Porter s five forces is the bargaining power of customers. This is a commodity market where quality and service are notoriously low so customers have almost zero switching cost and very high bargaining power. Connor Formed Metal Products is trying to stand

3 2 out by adopting a strategy of differentiation by having quality service and quality products to increase customers switching cost and reduce customer bargaining power and it is working to a degree because some customers are paying their higher prices. Therefore Connor Formed Metal Products has greater-than-zero-but-still-not-high bargaining power with customers. The third force in Porter s five forces is intra industry competition. There are around primarily owner-operated shops. Connor Formed Metal Products cannot weaken its intra industry competition because it would have to weaken owner-operated shops. They work in a perfectly competitive market which means that the market dictates the price, and in order to weaken a single business Connor would have to cut costs to make a greater margin than the other shops. The fourth force in Porter s five forces is the threat of new entrants. The threat of new entrants is very high because there are hundreds of shops that are run by the owner. This implies that the barrier to entry is very low with a low capital requirement to get started. The fifth force in Porter s five forces model is the threat of substitutes. This threat is very high as there are offshore competitors with lower cost structures and superior product quality entering the market. These offshore competitors are entering and stealing market share from more traditional small job shops that had supplied the industry in the past. They are also attempting to buy the larger firms as a way of entering the market. Identify Stakeholders Stakeholders are important to the organization. The theories of autopoiesis, chaos, and complexity encourage us to understand how change unfolds through circular patterns of interaction, and how organizations evolve or disappear along with changes occurring in the broader context. (Morgan, 2006) The following is a list of stakeholders: Bob Sloss - Bob Sloss is the president of Connor Formed Metal Products. He has taken a hands off approach to managing his operations with an emphasis on quality and

4 3 service in this commodity market. He wants the family business to succeed in the changing times. Manufacturing Plants - There are four separate plants that are effectively four separate businesses. They are as follows with their employee count as of 1990: The largest is the Los Angeles plant with 87 employees, and has implemented the Clipper* system. Second largest is the San Jose plant with 50 employees. Tied for smallest is the Portland plant with 35 employees. Tied for smallest is the Dallas plant with 35 employees. Michael Quarry - Michael Quarry is the Human Resources and Information Systems manager at Connor Formed Metal Products. He developed a system called Clipper* and it is a very effective system at displaying order information on top of being easy to use. Shareholders - These are the people who are partial owners of the company. As of %* of capital stock is owned by employees. These people get paid when Connor Formed Metal Products performs well. List Alternatives The first alternative is always do nothing. Do nothing in the case of Connor Formed Metal Products is to not install Clipper in the other manufacturing plants. Here is how it impacts the stakeholders. Bob Sloss is impacted by this alternative because it costs him less and it goes with him mission of letting each manufacturing plant operate independently. Ultimately, he is not impacted by this alternative that much. The manufacturing plants are impacted because management at the other manufacturing plants do not have to reorganize anything and the engineers or employees do not have to learn any software. Overall the manufacturing plants are not impacted by this alternative. Michael Quarry is impacted by this alternative because he does not have to train the employees on how to use the new system. The shareholders are impacted

5 4 only because Connor Formed Metal Products is not in a great spot right now so the shareholders will still get paid but not as much. However, since nothing is changing their payout will not be affected so they are not impacted that much. The second alternative is to sell itself to an offshore firm. What this alternative states is that with the offshore firms entering and doing everything the US market is doing but higher quality, they are substitutes and there is nothing you can do to substitutes; therefore if Connor Formed Metal Products sells itself to an offshore firm, they might get a better deal. This alternative impacts the stakeholders as follows. Bob Sloss is impacted because he is probably out of a job if he does this, and a corporation has a fiduciary responsibility to maximize shareholder revenue. The manufacturing plants are impacted by this because they are going to be reorganized under new management and probably worse working conditions because Bob Sloss makes it a priority to have motivated employees. Michael Quarry is impacted because he is probably out of a job as well if the company buying them already has his position filled. The offshore firm might want to implement his software but since they are doing well they probably will not. This impacts them because they will not receive dividends from Connor Formed Metal Products anymore, which goes against a corporation s fiduciary responsibility. The third alternative is to change the strategy to cost leadership and implement the software. Bob Sloss is impacted because he will have to begin a restructure to make Connor Formed Metal Products a functional organization structure. He will also have a lot more oversight and detail. The plants are impacted by this alternative because there will be a restructure that makes the plants more efficient. The plants are also impacted by this alternative because the employees will have to be trained to use the software. Michael Quarry is impacted by this alternative because he has to install and configure the system in every plant computer and train the employees how to use the software. In addition he is impacted because his responsibilities will be separated. They are impacted by this alternative because the dividends will be much lower during the years of the restructure.

6 5 Do Nothing The only alternative is to do nothing because Sloss ran exhausted the options for Connor Formed Metal Products the moment he decided to switch their generic strategy to differentiation. The reason for this is that the other alternatives are either go against their fiduciary responsibility or are too slow to actually work. You cannot look for a buyer because corporations have a fiduciary responsibility to maximize shareholder revenue. By selling to another company, Sloss might make sure that his employees get the better end of the deal and not get fired or they might get better wages in the acquisition, but that would be ignoring the ethical goal of his business. The offshore firms are globalizing because they have realized Clients and customers are globalizing, and it is clearly necessary for their suppliers to globalize as well if they expect to retain their preferred positions (Fried, 1995) The reason the offshore firms are unlikely to change their terms just because Connor Formed Metal Products is approaching them and not the other way around is because Finally, the multinationals are heavily criticized for driving unduly hard bargains with their host nations and communities, often playing one group or country against another to achieve exceptional concessions. (Morgan, 2006) They should have stayed a with cost leadership strategy, because while quality does matter Sloss could have achieved higher quality in a cost leadership strategy by implementing tighter quality controls. Switching now is very risky and unlikely to work. The significance of [living with emergence as a natural state of affairs] has been underscored in many ways. In complex systems no one is ever in a position to control or design system operations in a comprehensive way. (Morgan, 2006) However if switching strategy does then Connor Forged Metal Products might stand a chance at competing with the offshore firms by having the higher quality products and a lower cost structure after the switch. This is because the goal of a

7 6 manufacturing firm is not to have happy employees or a quality product, The goal of every manufacturing organization is to make money. (Goldratt & Cox, 1984) In addition to the reasons listed above, alternatives two and three might not even work. Which means that in addition to being unethical and/or slow, there is a chance that Bob Sloss is wasting resources on either looking for a buyer, negotiating with the offshore firm, and hoping the outcome is better than he would have gotten if he would have just waited. It is that or he wastes resources on a restructure, has to recover, and potentially gets bought out by one of the offshore firms in the process of recovering. For example, the population-ecology view of organizations revives the ideology of social Darwinism, which stressed that social life is based on the laws of nature and that only the fittest will survive. Social Darwinism arose as an ideology supporting the early development of capitalism in which small firms competed for survival on a free and open basis. (Morgan, 2006)

8 7 Bibliography Fried, L. (1995). Managing Information Technology in Turbulent Times. New York City: John Wiley & Sons, Inc. Goldratt, E. M., & Cox, J. (1984). The Goal: A Process of Ongoing Improvement. Great Barrington: The North River Press Publishing Company. Morgan, G. (2006). Images of Organization. Thousand Oaks: Sage Publications, Inc.