It has happened, it happens and will happen…
Some place, some time. Prior to the 2007-2008 crisis.
Company: AMISTAD spa
Fao. Executive Team – Amistad spa
Here follows a breakdown of the main strategy points defined over the course of meetings held this past month for you to share with your fellow workers. I have also requested a special meeting with the Executive Board to put forward our proposal and get it approved. If everything proceeds without any glitches, we will be able to get going, according to the guidelines we have agreed upon, as of next month.
Macroeconomic backdrop and impact on business
The crisis caused by difficulties in the financial markets and the recession, likely to affect all industry sectors – some of which are structurally critical to our operations and to this company, mean we find ourselves forced to profoundly re-think the strategies we have followed until now.
A sustained period of growth in both turnover and profitability appears to be over. Various indicators show an inverse tendency in growth of our main markets and the presence of ever more aggressive competitors.
The results of the first trimester with a decreased turnover (-5%) oblige us to react quickly, before the situation deteriorates any further.
Urgencies and weaknesses
The new product launches of this past year have failed to yield the results we were all expecting. Some of our competitors are getting more competitively priced products with better features to market faster.
Turnover is still tipped too much toward the Italian market which remains our main sales area.
Our supply chain, which has performed so well in the past, is showing signs of difficulty, especially in the management of product variety (a complexity increase) and in the lengthening of delivery times.
In-house, as shown by the report produced by Human Resources, we are seeing an increase in personnel dissatisfaction, increasing difficulty in the management of relationships between functions and low participation levels.
Five Year Strategic Plan
In response to the above described situation, the Executive Team has devised a new, strategic plan:
-Search for new vendors for USA, China, Russia to be undertaken immediately.
-Intensification of sales activity in European nations.
-Greater integration with Marketing and Product Development teams.
-Intensive Sales Force training to create new sales instruments and update our approach to client and prospect development.
-Implementation of a new development process for products to better responds to client and potential client expectations.
-Creation of a Product Development Team including people from: Sales, Product Development, Marketing and Production in order to achieve fast market release cycles for new products and to directly involve all key players in the development process.
-Creation of an Innovation Team to explore new markets and ideas for innovative products. We will take action to increase the number of people involved in order to boost the production of original ideas.
-Given the strategic importance of product development and innovation for the future of the company, the Product Development and Innovation Teams shall report directly to the Executive Team.
That which is of critical importance in this area does not concern production capacity (machine utilization is considerably low) but flexibility and speed, which until now have been addressed by increasing stocks, although there has been a decline in service levels.
We have decided to totally overhaul the supply chain structure and make-or-buy logistics; re-designing what is going to have to become a system truly capable of delivering the required performance.
Significant modifications will be made to factory layout (arranged by departments) operating on flow logic and programming (linked to tired MRP Logic). Plant or new machinery investment decisions will no longer be taken according to the productivity calculations of the plant or single piece of machinery, but according to an overall Supply Chain vision and the calculated productivity increase of the entire system.
The majority of actions will be taken in the areas indicated above; as part of the plan, marketing strategy will also have to be reconsidered so that it works in sync with Sales (new markets and new clients) and with the Product Development Team, building a brand capable of creating a unique position for us.
Human Resources will its change name to People Development and thoroughly modify operations in order to play a new and more active role compared to before. The People Development department will have to integrate itself with other areas of the organization so as to contribute to the creation of a stimulating and motivating environment and it will also change obsolete, internal procedures.
The situation we are confronted with demands thorough reconsideration of personnel management, salaries and profit distribution.
Management has brought us to where we are, in a moment turning into a crisis of vast proportions and predicted to last, with a solid financial base and good liquidity; we will deploy the funds we have to face and overcome these circumstances of crisis.
There are four preconditions to the difficult decisions we intend to put to the Board of Directors for taking. These preconditions are to be implemented immediately:
a) Protection of company know-how, preservation of the patrimony of skills and experience of our workers, acquired over many years spent operating in a highly specialized sector;
b) Just as any family going through a particularly lean period would do, sacrifices must be made equally and not expected exclusively of the weakest;
c) We are convinced that the plan we have outlined will require thorough change in the running of business and build the foundation pillars of a company capable of operating successfully and overtaking competition in foreign markets, in a context of modernity;
d) The proposed plan is in line with the values the company has always professed; values which will become the founding principles of the strategy we are to embark on to re-launch the brand.
The following decisions will come into effect immediately:
- A decrease in profit distribution to shareholders, possibly reduced down to zero even, if challenging circumstances persist. Even if now is not balance sheet approval time, we believe that shareholders, the Board of Directors and employees must be made aware of the strategy we wish to implement and of the decisions that will ensue.
- Cancellation of all bonuses for first and second level managers. Bonuses will be reinstated as soon as company turnover and profitability are completely restored.
- Salaries: The Executive Team, in accordance with the above-mentioned objectives and company values, will decrease salaries by 15% and reduce director and second level manager salaries by 10%.
- Skills development: Implementing a new strategy requires new competencies. Therefore all personnel training and growth is confirmed and extended as per the strategic plan. The Executive Team considers the motivation, skills and passion of everyone involved in the new strategy to be the determining factor for success.
Our proposals are revolutionary. They will create profound change in our company and to our way of doing things. Each of you has an opportunity to be part of this extraordinary adventure of deeply re-designing your company from within.
CEO Amistad spa
Some of you will remember the film Amistad (Friendship) by Steven Spielberg. Amistad was the name of a nineteenth century, two-masted slave-ship schooner which became a symbol of the abolition of slavery further to a mutiny carried out by African slaves in July 1839. The slaves were subsequently captured, placed on trial and absolved.
There is no parallel to be drawn here between slavery and companies today. Fortunately times have changed.
A parallel can be drawn however between the idea of freedom and work and the courage to make unorthodox but right choices. We all too frequently forget that right and wrong exist, even in decisions taken at board level. Those in a position of responsibility should realize that money is not the only parameter of evaluation. Certainly, money is important to running a company well. It is in fact indispensable, just as oxygen is for human beings. However just as we don’t live just to breathe, so businesses also have other ambitions. It is said that profit is the result of a job well done, the recognition of clients.
We have seen and see crazy decisions taken by people who must either justify their existence, cash in on a bonus, or reach career goals they have set for themselves. Such people don’t mind if many people lose their jobs, their single source of income! They don’t see this as a problem, they obey orders…
It doesn’t need to be so.
Cases of unexpected market change are very rare, the presence of a range of signals pointing to strategies in need of change is more common; perhaps product development is no longer effective, or the market is approaching a phase of change, which is usually preceded by a transition, or perhaps an in-house environment is progressively deteriorating. All these signs unfortunately in many cases go ignored.
In fact, if a company isn’t doing well it means that either wrong decisions have been made or no decision has been made. One rests at ease in the calm and apparent sleepiness of the status quo and thus ineffective and inefficient processes are tolerated and/or “managed”. Let us not forget that only the individual responsible for a company has the necessary authority and power to change it. This is a specific and fundamental responsibility that cannot be delegated.
May 1st is Labor Day. Work is very important for all of us. With and through work we grow professionally and as people. Working creates wellbeing for our families and consequently for the citizenry. Through work we make our contribution and increase our intelligence and creativity. Or at least we should. Over recent years we have witnessed a progressive impoverishment of economic conditions, entire sectors of industry have been swept away, completely eliminated. Entire professionalisms and skill sets have been destroyed. We have completely forgotten, lost as we are in various policies of cost containment, re-organization and “optimization”, how important it is to have competent and motivated people and reliable and helpful suppliers, and that producing real innovation and working together are what build the future.
Today, unfortunately, we are all a little worse off.
We are duty bound to believe in something better. But hoping is not enough. We must also act and people with power and authority have a duty to set an example and to begin courageously making the necessary changes.
Have a good week,