CASE STUDY: The firm may need to outsource much or all of its manufacturing while retaining design, marketing and distribution in Ireland
THE SITUATION raises two main concerns for Jim and Robert. The first is the emergence and potential threat of new substitute technologies requiring heavy additional R&D investment to respond to this challenge. The second is customers switching their business to alternative suppliers in low-cost countries with the key decision criteria apparently being one of cost minimisation rather than technical quality of the product.
These two issues raise different and serious challenges for the firm.
In offering advice on how to proceed I am assuming that the management team want to save the firm and protect as many of the current jobs in the firm as is feasible.
What should Jim and Robert do?
In the immediate term they need to set a short date for making a definitive and collective decision. There must be no sign of dissention between the two partners. They must speak with one voice.
Then they must immediately engage in open communications with all staff on the serious strategic and financial situation facing the firm. This approach runs the risk of some valuable employees jumping ship early. However, it is likely that the rumour mill has already started and so open and honest communication can only help the situation. If the firm is to survive, the core employees need to be involved in and committed to the change process.
Jim and Robert must engage in immediate communication with the firm's main customers. The firm needs to know why they are losing market share and the main reasons why customers are switching to competitor products (is it primarily price? Is the product too sophisticated or over-engineered?). The firm needs to know what customer needs their product is not currently meeting and what their customers would like their product to do for them in the future.
They should benchmark their product against competitors' products. Why are customers buying these products? Are they in any way technically better? Can we learn from their design (with due regard to intellectual-property concerns)? Are they cheaper?
It is also important to undertake an immediate root-and-branch review of all expenditures and processes within the firm. Establish teams of workers to review all core processes and activities and bring forward suggestions for immediate cost savings and productivity improvements. Depending on the current financial position of the firm, immediate savings on wages may be necessary. The important issue here is not to overreact and to be creative and collaborative in how the savings can be achieved. It is also important that the firm retains as much of its valuable intellectual and social capital as possible if it is to continue to adapt and innovate into the future.
In the medium term, Jim and Robert should actively seek out new customers and new applications for their existing capability base.
They should embark on a process of world-class manufacturing to ensure that the firm adopts cutting-edge practices for maximum efficiency and effectiveness. This process will also require the firm to reconsider its core business model with the possibility of outsourcing much or all of its manufacturing while retaining design, marketing and distribution in Ireland. Coupled to this would be the need to adopt a strategy of related and/or unrelated diversification to extend its product range and value-added services.
Finally, Jim and Robert must continue to stress the need for constant innovation at all levels in the firm, clearly aligning the selection/recruitment, training/development, communication and reward systems around this strategic priority.
- Dr Paul McGrath, Quinn school of business, UCD
