Clayton Industries

Q1A: Key Economic, Social and Organizational Factors

Clayton Europe faced several economic and social problems throughout 2004-2009 that threatened their existence. One of the main factors threatening the company's expansion and market share in Europe is the Europeans standard view of air conditioning (A/C). They see A/C as an American luxury item that is unnecessary especially because of its harmful environmental factors. Most of Europe had a preference for prevalent local brands and Asian competitors were offering similar products at lower prices. Clayton Europe has been offering an uncompetitive product line because they don't offer a low price strategy and their brand name is weak compared to national brands. Accompanying these problems is the structure of Italy's buildings; they lack duct work making Clayton's products unsuitable. The global recession hit Europe in 2008. Growth was stalled and profit margins fell drastically, this affected Clayton Europe tremendously. Another major economical factor was the 27% price increase in steel due to the recession. This increase in cost of goods sold could not be recouped, and due to competitive pricing Clayton Europe could not raise prices. All of these factors impacted Clayton Europe's performance throughout the 2000's.

Q1B: Top 4 Things that Best Summarize Clayton SpA's Financial Position in Early 2009

After observing the balance sheet for Clayton Industries from 2004-2009, it is evident there is a huge erosion in shareholder's equity. During a recession, interest rates go down which most likely led Clayton Industries to take on more long term debt, increasing current liabilities. The debt to equity ratio for the year 2004 was 1.16 which was comparable to the industry average of 1.17. Clayton SpA has a current D/E ratio equal to -4.89 which implies low stock holder value and bankruptcy risk. Another statistic calculated from the balance sheet that summarizes Clayton SpA's financial position is their current ratio. In general, from 2005 to 2009 Clayton SpA's current ratio declines from 1.64 to 1.31. The company is heading towards a current ratio of 1, which theoretically would mean they would be unable to pay off their current liabilities with their current assets. This ratio portrays Clayton SpA's second major financial problem which is their decrease in liquidity. As the days to collect receivables increase, their current assets decrease causing less cash on hand. Also, the companies increase in debt throughout 2004-2009 increases their current liabilities which also decreases their liquidity. Clayton SpA's increase in inventory turnover is unhealthy and represents an investment with a rate of return equal to zero.

The last two reasons for Clayton SpA's 2009 financial position will be illustrated by comparing financial ratios between Clayton SpA and Clayton SA (Belgium/France/Netherlands) due to their similar sizes in terms of operations. The Clayton SpA's profit margin from 2004-2009 rapidly declines into the negatives while Clayton SA's profit margin is considerably more impressive, specifically during the recession period time. In 2009, Clayton SpA had a profit margin equal to -12.38% while Clayton SA's profit margin was approximately equal to a positive 1.03%. Both subsidiaries profit margin falls rapidly from 2007-2009 due to the 27% increase in the price of steel reducing net income. Another reason for Italy's poor performance is illustrated by the decrease in revenue between 2006 and 2009 due to a decline in demand. Clayton SpA's average change in revenue between 2006 and 2009 was -4.45% while Clayton SA's was equal to a positive 3.75%.

Q2A: Is Peter Arnell Right for the Job?

Peter Arnell's many positive qualities outweighed his faults. These qualities led to his appointment as President of Clayton SpA by Simonne Buis. Arnell's military background embodies his disciplined attitude in the work place as well as his determination to succeed, whether on the battle field or in business. Arnell has been with the company since 1998, and by 2002 had worked his way up to President of Clayton Ltd. (UK). During his time as marketing manager, Arnell expanded the UK subsidiaries distribution channel from 4 distributions in England to 14 distributions throughout the UK and Ireland. After becoming President, Arnell implicated Buis's first priority of cutting costs by shutting down a presumably inefficient plant. These bold actions embodied the characteristics required to be President of Clayton SpA in Buis's eyes. In addition, Arnell spent several summers in Italy which gave him an understanding of the local culture and language. Peter Arnell was named the new President of Clayton SpA in June-July of 2009 as they were in desperate need of a leader as sales threatened to drop for the third consecutive year. His drive for success and hard work ethic were immediately exemplified after asking his family to wait about two and a half months to join him in Italy. However, Arnell's opinionated personality could lead to an unwillingness to compromise or rash decisions. Throughout Arnell's career with Clayton Ltd. he alienated certain colleagues which could lead to hindered relationships throughout the company making it harder to work together. Arnell also holds himself and his coworkers to higher standards then the norm. These expectations could perhaps be set to high causing employee turmoil, dissatisfaction, and an unwillingness to cooperate.

Q2B1: Pro's and Con's of Firing 3 Key Executives

Peter Arnell arrived in Italy on July 20, 2009 which is the very same day he fired the plant, quality control, and company controller managers. This quick forceful action is accompanied by positive and negative effects. This motion set an immediate productive, strict, and unified atmosphere. It challenged all of Clayton SpA's employees to be team players working for the greater good. Arnell understands the future of this subsidiary is not only questionable, but crucial to Clayton Europe and he makes this clear by firing those unwilling to sacrifice personal benefits for the longevity of the company. The termination of the three managers led to another problem, who will replace them? This question was quickly answered by Arnell, who promoted three employees from within the company. This leads to the assumption that these new managers are not yet ready, or not as qualified as the original managers. The new executives most likely won't have a strong perspective on operations and won't have individual work plans for the next 60 days. Another negative effect of Arnell's bold decision is it may have been the cause of FILM