Clayton Industries

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A Case Analysis

Table of Contents
Executive Summary1
Company Background3
Problem Statement5
Internal Factors5
External Factors6
Revitalize Clayton SpA9
Absorption Chillers11
Considerations of Peter Arnell13
Reduce Capital Use14
Reduce Costs14
Rationalize Product Line15
Align for Growth16

Executive Summary
In the midst of a global recession, Clayton Industries is challenged by a diminishing demand for their product and rising variable costs. These issues are further compounded by stiff market competition that threatens the existence of their most profitable product. This analysis focuses on the Italian subsidiary, Clayton SpA. Italy’s Brescia plant is no longer profitable; it faces declining sales, increased production expenses, and high personnel costs. The previous president concentrated his efforts internally in Italy, ignoring his regional responsibility for marketing compression chillers (A/C units) throughout Europe. Successor Peter Arnell has been tasked with meeting corporate initiatives and restoring profitability. Three choices are available: revitalize and further invest in the Brescia plant, change the product line to absorption chillers, or study strategic options for at least six months while focusing on efficiency. Arnell is facing several critical decisions. Researching options for the next six months while focusing on increasing efficiency is the best option for Clayton SpA. Current and future political, financial, and economic constraints should be further evaluated before a final action plan is devised and implemented. Background

Clayton Industries, based in Milwaukee, Wisconsin, is an international company specializing in residential and commercial air conditioning (A/C) systems. Clayton began operation in 1938 by producing window-mounted residential and light-commercial units, expanding in the early 1980’s to the commercial sector within North America and into the European market with its current product line. Entry into Europe was accomplished through acquisitions of four companies: Corliss (United Kingdom), Fontaire (Brussels), Control del Clima (Barcelona) and AeroPuro (Brescia). In 1988, the company restructured by forming two separate entities under the corporate headquarters: Clayton North America and Clayton Europe. Market penetration in Europe was slow in the early 1990’s and by 1998, only 7% of homes in Italy and 11% in Spain had air conditioning. In an effort to create a more integrated European organization, Simonne Buis, named president of Clayton Europe in 2001, set regional goals to increase operational efficiency and market penetration of the entire product line. Country managers were now responsible for their product’s profitability throughout all of Europe. The European market was a major growth source for Clayton from 2001-2008, Clayton Europe increased its share of global revenue from 33% in 2000 to 45% by 2009 (Bartlett & Barlow, 2010, p.2). However, the global recession, which began in 2008, stalled growth and brought management and strategic changes to both North America and Europe. In 2009, Dan Briggs, previously the Executive Vice President of Clayton North America, became CEO of Clayton Industries, Inc. Briggs identified two priorities for the company: reduce capital use and bring costs under control. He emphasized that “great opportunities always reside inside crisis” and managers should rationalize product line and align for growth (Barlett et al., p.3). Together, Briggs and Buis discussed future growth for the company. Briggs still viewed Europe as a source of growth for Clayton Industries, but had concerns with the commercial A/C product line. Buis, however, felt that Clayton could rebound on a post-recession expansion and capitalize on...
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