Analysis of Clayton Case
Problem Analysis
The key business issue facing Clayton in late 2009 is that its Italian subsidiary, Clayton SpA, has been making heavy operational losses for three years now, to the tune of over $1 million USD a month.
While these losses have been exacerbated due to a general global recession which has reduced sales (which are down by 19%), their root cause lies in the fact that since 2001, Simonne Buis had been making organizational changes, and trying to create a more integrated European organization. In the pursuit of this, she set goals for individual subsidiaries with a broad brush that did not consider the intricacies of local markets. This framing of common targets ignored the strengths and weaknesses of individual subsidiaries.
Despite customers’ preference and technical limitations for local brands, Buis drove her vision for Europe-wide sales of premium country-specific brands. This strategy was doomed to fail in the face of competition from other local brands and price competition from Asian manufacturers. In response to CEO Dan Briggs’ concerns about cost, Buis asked all subsidiaries to follow her 10/10/10 plan to reduce receivables, inventory and headcount. This would cause different problems in different geographies.
Clayton SpA had strong political connections which they leveraged to get large projects. Following Buis’ plan meant that they would have had to lose this advantage in order to push sales in room air-conditioners and ventilators market - which was never their strong suit, and where their chances of success were bleak in the face of competition. At the same time, Buis had so far refused to fund expansion of capacity in Spain for the advanced absorption chiller technology that the market was moving towards. This meant that Clayton were not preparing to offer products that customers would demand in the future.
The overall effect of Buis’ strategy was to dilute the local subsidiaries’ efforts into areas where they were weak, while
The key business issue facing Clayton in late 2009 is that its Italian subsidiary, Clayton SpA, has been making heavy operational losses for three years now, to the tune of over $1 million USD a month.
While these losses have been exacerbated due to a general global recession which has reduced sales (which are down by 19%), their root cause lies in the fact that since 2001, Simonne Buis had been making organizational changes, and trying to create a more integrated European organization. In the pursuit of this, she set goals for individual subsidiaries with a broad brush that did not consider the intricacies of local markets. This framing of common targets ignored the strengths and weaknesses of individual subsidiaries.
Despite customers’ preference and technical limitations for local brands, Buis drove her vision for Europe-wide sales of premium country-specific brands. This strategy was doomed to fail in the face of competition from other local brands and price competition from Asian manufacturers. In response to CEO Dan Briggs’ concerns about cost, Buis asked all subsidiaries to follow her 10/10/10 plan to reduce receivables, inventory and headcount. This would cause different problems in different geographies.
Clayton SpA had strong political connections which they leveraged to get large projects. Following Buis’ plan meant that they would have had to lose this advantage in order to push sales in room air-conditioners and ventilators market - which was never their strong suit, and where their chances of success were bleak in the face of competition. At the same time, Buis had so far refused to fund expansion of capacity in Spain for the advanced absorption chiller technology that the market was moving towards. This meant that Clayton were not preparing to offer products that customers would demand in the future.
The overall effect of Buis’ strategy was to dilute the local subsidiaries’ efforts into areas where they were weak, while