Clayton Industries Inc. was founded in 1938 in Milwaukee and became very successful in the United States manufacturing room air conditioners. The company built a strong position in Europe by acquiring four different companies in that continent. The operations between the US and Europe had been separated to better manage its expansion. Since 2001, Simone Buis is the President of Clayton Europe and she made increasing operational efficiency her priority. During the next seven years, Europe became the major growth engine for Clayton and increased the company’s global revenue from 33% to 45%.
As a result of the economic crisis, the CEO stepped aside in favor of Dan Briggs in 2009. Dan Briggs’s priorities were reducing capital use and controlling costs. The 2009 crisis triggered strategic adjustments and management changes in the US and European operations. The CEO wants the company to be positioning for a post-recession expansion. So, Peter Arnell, promoted from the British subsidiary, Clayton Ltd, was declared country manager of Clayton SpA, the Italian subsidiary of US-based Clayton Industries. D. Briggs and S. Buis expected Arnell to position Clayton SpA for future growth. European countries have different needs and national brand preferences and Clayton’s slow market penetration reflects it. P. Arnell took the position knowing that the operation in Italy was in a hard situation and he was immediately confronted with opposition from union officials. The union suggested shortened shifts for the company’s members.
Arnell took the initiative to meet with the bank to postpone large payments due on the company’s credit line to buy Clayton SpA some time while he continued to assess the situation. As a result, chillers accounted for 55% of Italy’s revenues, but it lagged behind commercial customers who favored Asian products. Clayton SpA had failed to develop a broader marketing capability to sell other products. Brescia’s chiller penetration outside Italy was poor, because for the customers, the product was too expensive and did not have the same innovative features as competitors. The company was loosing more than $1 million a month due to the large increase in steel prices. Arnell had to face 3 options:
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1) Create programs to boost plant efficiency, to product development initiatives to revitalize the compression chiller line, and a sales and marketing plan to expand market share outside Italy. The estimated cost will be $5 million. 2) Phase out the compression chiller line and convert capacity to absorption chillers to meet the growing market. The estimated cost will be $15 million. 3) Focus on efficiency measures to restore profitability while studying the various strategic options for at least another 6 months.
According to me, it is too early to make major strategic commitments in an economy unstable and P.Arnell needs to continue to assess the situation for a little longer while increasing the profitability and efficiency. The two other options are very costly in the early phases. The company is already loosing money very fast and spending more money at this time would not be cost effective. Clayton SpA needs a strong competitive advantage on its market and need to adapt to the major changes in the external economic environment. Peter Arnell has to be a strategic manager by getting his subordinates’ support and finding new external inputs.
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