Maytag Loose Controls

Topics: Cost-benefit analysis, Cost, Welfare economics Pages: 3 (883 words) Published: November 1, 2010
Maytag: Incredibly Loose Supervision of a Foreign Subsidiary; Also, the Allure of Outsourcing October 10, 2010

The main topic of the Maytag case is the poor decisions made by Maytag management over the years that created financial hardships, loss of market share, and forcing the organization to outsource much of its operation. The case provides several examples that support the main topic. Three main examples to support the main topic are the loose rains Maytag Corporation gave to Hoover management, lack of cost-benefit analysis planning, and overpaying for acquisitions. First, Maytag failed to adequately supervise their subsidiary, Hover International. Hoover created a travel promotion where customers could get round trip tickets to select destinations in Europe, Orlando, or New York. Customers needed to spend at least $150 to get two fee tickets, and it wasn’t long before customers realized that the value of the tickets were worth more than the cost of the Hoover products. It created an arbitrage opportunity for the customer and a loss leader, catastrophic problem for Hoover and more importantly, Maytag. Management underestimated the response to the promotion. Hoover expected 50,000 responses, but received more than 200,000. They expected to earn a percent of travel bookings for packages sold, but this was overestimated as many customers passed on this option. In addition to these miscalculations, management banked on getting customers in the door with the promotions which would lead to increased sales. Unfortunately, once customers realized their arbitrage opportunity, they only bought the minimum needed to qualify for the free trip. The management of Maytag was not aware of the problems with the promotion until it was too late. The failure to supervise Hoover cost Maytag over $50 million dollars to resolve the problem. This relates to class discussions in terms of job enrichment, which is the opportunity for growth and...
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