26 Aug Ralph Lorean International (RLI) owner of several hous
Ralph Lorean International (RLI) owner of several house décor and furniture manufacturers recently purchased a controlling interest in a medium size firm, House of Cloth (HOC), which employs 6,644 people worldwide. HOC has been considered a premier manufacturer of cloth since 1964. Revenues over the last four years have been flat and costs are rising steadily. RLI purchases the interest in the company despite the flat sales because of its reputation and loyal customer base. RLI has a history of turning troubled companies around and they think they can do the same with HOC.
RLI has to date allowed HOC to operate independently while they examine closely the causes of the recent poor performance of the company. Areama Cantros, was recently promoted to senior management analyst because of her superb work with Izzy’s Bed Emporium. RLI has decided to send Areama to HOC on a fact finding mission. She is to discover the challenges facing the management at HOC and make recommendations that will improve and grow significantly HOC’s financial performance.
Areama’s, first meeting with HOC’s management team after arriving at their headquarters seemed to go well. The first thing Areama noticed about the team was that while they seemed to be personally different in obvious ways, beneath the surface they were quite alike. Of the seven members who compose the team, three have been with the company since its inception. The remaining four are much younger and came to the company after its international expansion in 2010. Two of the team members have worked with HOC in India and came to headquarters as part of a promotion plan. The other two team members come from Guatemala and Romania where they were employed in local branches of HOC. The team membership is predominately male with only two women. Despite the differences in age, gender, company tenure, and their functional and industry background, the members seem they are cut from the same cloth in that each is very businesslike, analytical, competitive, and results driven.
In your discussion regarding the company’s expansion five years ago, Henry Smythe, one of the founders, remarked, “The expansion was tough for us because of all the pressure and uncertainty, and to be honest, we really didn’t jell together at first-I though it was a big mistake to bring new people on board to manage the ship-but now we’re past all that, we’re very cohesive, and we share the same vision of how we do business. This is a good thing because when I retire in a few years, I’ll know the company is in good hands.” Everyone in the room seemed to be nod in agreement. Another founder, Russell “Rusty” Gee, then looked squarely into Areama’s eyes and added, “I’m not exactly sure what you ae doing here, but we have weathered storms together and while I admit the last years haven’t been stellar, I know we can handle things ourselves-this was part of the deal, wasn’t it? We know this place better than anyone, so I can’t imagine we’ll seriously consider any recommendations that will upset the apple cart.” Rusty made the statement in a friendly way with a smile on his face, yet Areama knew he was serious.
Although the meeting told Areama many things two things stood out to her as real problems. First turnover among the creative team associates is high: thirty-five percent each year for the last two years, and thirty percent the year before that. The industry average is twenty percent. HOC’s creative team is integral to its competitive edge in the industry. New patterns, cloth fabrics and uses are essential to the firm’s livelihood. Although the top management team is aware of the problem they seem to rationalize it. As “Jamie Wagner, VP of human resources noted, “We hire the best and the brightest, so it’s only natural that they occasionally get poached by other firms. We try our best to keep them, but we haven’t been able to match salaries with our competitors in recent years. Once things turn around the numbers will go down.”
Beside the turnover issue Areama also learned that the company had been sued three times recently. The cases all involved associates who were passed over for promotion and who claimed the work environment was so filled with stress that it made them ill and unable to work. Areama was aware of the first case because it was highly publicized and HOC was forced to settle the case to get out of the public eye. Afraid of the similar problems with the first case HOC settled both suits out of court quickly and managed to keep them out of the eye of the press. Senior management seemed to be proud of this fact. Before you had a chance to ask Jamie if she thought the suits and turnover may be related, Jamie volunteers the following. “We were really unlucky during this period. We hired three associates who didn’t possess the right capabilities for the job and each had trouble coping in their own way. Most everyone that comes to our design team at HOC is drawn to our reputation for quality and success. We just have to find a better way of finding people who fit.”
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