Clayton Industries

Clayton Industries :

Peter Arnell, Country Manager for Italy

Question 1

Evaluate Peter Arnell first two months as general manager of Clayton Spa .What are the main challenges he faces? How well he is dealing with them?

Background Information

Clayton Industries Inc was founded in Milwaukee in 1938.Its business was concentrated in creating and selling window mounted room air conditioners for residential and light commercial applications. In early 1980s there were two growth opportunities

* North American Commercial Sector

* Residential and commercial markets in Europe

In order to expand its position in Europe it has following strategies

* Acquired Four companies

* Organization Restructuring

 All operations in United States and Canada were placed under Clayton North America

 European Acquisitions reported to a newly created Clayton Europe. Each of these entities were headed by a regional Company President.

Clayton Europe

Brussels became the formal Headquarter for Clayton Europe. Simone Buis became the president of Clayton Europe. Four country managers were appointed by the new President to deal with (Clayton SA Belgium, Clayton Spa Italy, Clayton SA Spain, Clayton Ltd UK ). Market penetration of US is 71%, for Spain is 11% and for Italy is 7%).

Problems At Clayton Spa

Clayton Spa faces various challenges to meet the new 10/10/10 targets set in Italy. The country is lagging in revenue growth which has resulted in receivables and inventories both being above 120 days sales. The headcount reduction target cannot be met due to stringent local laws and tense union relationship.

The "Top Four in Four" requirement would also be a challenge for Italian unit's because Italian revenues accounted for only 12% sales for rest of Europe. Of Seven Companies in European Chiller market , Clayton was in a distant fifth place with a 7% overall market share.

Reasons For Problems

* Global Economic Recession resulting in decrease in demand for Clayton products worldwide. Clayton Spa faces the same issues with 19.4% decline in sales in the first half of 2009.

* Government in Italy doesn't support layoff strategies. There is a strong resistance by Unions.

* Many Europeans saw Air Conditioning as an expensive Luxury Item that harmed the environment. Even though Clayton has slow market penetration but most Europeans prefer familiar local brands. Asian Producers also gain competition there on the base of price.

* Acquiring of AeroPuro was not turning out to be fruitful. The penetration was poor since the product was too expensive and also behind competitors in innovative features.

* Clayton Chillers lagged Operational Efficiency of market Leading units by 15%.

* Clayton products were not according to market requirements which is evident from the fact that Clayton's central AC units required heavy duct work but in Europe only a few buildings had duct work required for such systems. Customer preference to certain emerging technologies eg absorption cooling and central district cooling.

* In order to upgrade and expand operations, 203 people were employed, and staffing levels were 20-30 % high than required in actual.

* Lazzaro the previous president of Clayton Spa focus on building political relationships due to which Chillers accounted for 55% of Italian revenues but it lagged among commercial customers who favored Asian producers due to lower lifecycle costs through more efficient design.

* Unionised workforce also enjoying generous benefits.

Peter Arnell

Peter Arnell is the successor of Lazarro who was terminated by Buis. Arnell was a born competitiors , quick with both handshake and smile. He has military discipline and propensity for bold action. He drove himself hard and expect the same from others. He was outgoing and expressed opinions bluntly.

He was 42 year old head of British Subsidiary, Clayton Ltd. Arnell served seven years in Royal Marines as Captain. He joined Clayton's Brimingham office in sales and marketing job to gain management experience.

Evaluation and how well dealing with the Challenges

Peter Arnel the new country manager arrives Brescia on July 20,2009. That afternoon Arnell called a management meeting to share his assessment of Brescia's grave situation and to ask for their support. He requested all to postpone their vacation month, three managers ( plant manager, QC manager, company controller) expressed misgivings, so he dismissed them on the spot.

The following day after a meeting with HR director to identify strong successors he announced internal replacements for all three positions. He met individually with his top team to help him use first 60 days to understand the situation and develop strategy for the company.

But events at Clayton Spa did not wait for Arnell to complete his 60 days and on the second day he arrived at work to find four union officials from Federazione dei Lavoratori della Manifatture(FILM) outside his office with local Tv news crew. These officials suggested that he was a hatchet man sent to close the Brescia plant and implement a mass layoff. Arnell said that his mind was open and he has no such directive and his mind was open and that all options were on the table. He told them that he would keep them informed.

On August 4, Arnell met seven FILM representatives to show them how much money the operations were losing. He explained that in the current economic situation, the parent company wont subsidize these losses. The following week Arnell made an appointment to meet with Clayton's bank to renegotiate terms on the company's credit line. He invited a politically connected union representative , finance manager to accompany him as a gesture of good will. The three men secured the bank's agreement to postpone large payments due over the coming quarter. But he knew that while these few changes wont return the plant to profitability but might give company sometime as he complete his assessment of situation.

Arnell was quite well dealing with the situation as the problems in the Clayton Spa require an assessment of current