McClelland Vs Maslow

Executive Summary

In the midst of a global recession, Clayton Industries is challenged by a diminishing demand for their product and rising variable costs. These issues are further compounded by stiff market competition that threatens the existence of their most profitable product. This analysis focuses on the Italian subsidiary, Clayton SpA. Italy's Brescia plant is no longer profitable; it faces declining sales, increased production expenses, and high personnel costs. The previous president concentrated his efforts internally in Italy, ignoring his regional responsibility for marketing compression chillers (A/C units) throughout Europe. Successor Peter Arnell has been tasked with meeting corporate initiatives and restoring profitability. Three choices are available: revitalize and further invest in the Brescia plant, change the product line to absorption chillers, or study strategic options for at least six months while focusing on efficiency.

Arnell is facing several critical decisions. Researching options for the next six months while focusing on increasing efficiency is the best option for Clayton SpA. Current and future political, financial, and economic constraints should be further evaluated before a final action plan is devised and implemented.

Background

Clayton Industries, based in Milwaukee, Wisconsin, is an international company specializing in residential and commercial air conditioning (A/C) systems. Clayton began operation in 1938 by producing window-mounted residential and light-commercial units, expanding in the early 1980's to the commercial sector within North America and into the European market with its current product line. Entry into Europe was accomplished through acquisitions of four companies: Corliss (United Kingdom), Fontaire (Brussels), Control del Clima (Barcelona) and AeroPuro (Brescia). In 1988, the company restructured by forming two separate entities under the corporate headquarters: Clayton North America and Clayton Europe.

Market penetration in Europe was slow in the early 1990's and by 1998, only 7% of homes in Italy and 11% in Spain had air conditioning. In an effort to create a more integrated European organization, Simonne Buis, named president of Clayton Europe in 2001, set regional goals to increase operational efficiency and market penetration of the entire product line. Country managers were now responsible for their product's profitability throughout all of Europe. The European market was a major growth source for Clayton from 2001-2008, Clayton Europe increased its share of global revenue from 33% in 2000 to 45% by 2009 (Bartlett & Barlow, 2010, p.2). However, the global recession, which began in 2008, stalled growth and brought management and strategic changes to both North America and Europe. In 2009, Dan Briggs, previously the Executive Vice President of Clayton North America, became CEO of Clayton Industries, Inc. Briggs identified two priorities for the company: reduce capital use and bring costs under control. He emphasized that "great opportunities always reside inside crisis" and managers should rationalize product line and align for growth (Barlett et al., p.3).

Together, Briggs and Buis discussed future growth for the company. Briggs still viewed Europe as a source of growth for Clayton Industries, but had concerns with the commercial A/C product line. Buis, however, felt that Clayton could rebound on a post-recession expansion and capitalize on changing consumer behaviors due to several record-hot summers. Buis implemented two corporate initiatives designed to increase efficiency: the 10/10/10 plan and "Top Four in Four". The 10/10/10 plan called for all European companies to reduce receivables and inventories by 10 days and to reduce personnel by 10 percent. For "Top Four in Four", each country manager was to prepare a plan to show how the product for which they had European-wide responsibility would hold a top four share of the European market in four years (Bartlett et al., p.3). In June of 2009, Buis fired Paolo Lazzaro, president of Clayton SpA since 1998, for his attitude that Italy should "weather the storm" of what he felt was just a low in the commodity cycle and not developing a plan of action. Peter Arnell, named successor of Italy in July, was tasked with turning Clayton SpA around and meeting corporate initiatives.

Problem

Clayton Industries was struggling due to the recent recession. However, Clayton SpA was particularly faltering - losing approximately one million dollars a month in mid-2009. Since 2004, Italy had been behind other European countries in revenue growth. Sales declined 5.3% in 2008 and in the first half of 2009 dropped by 19.4% (Bartlett et al., p.3). Accomplishing either corporate initiative set by Buis would be difficult for Clayton SpA. Inventory and receivables were both above 120 days and a reduction of 10 days would be difficult. Several factors, both internal and external, lead to the situation Italy faced at the time.

Internal Factors

Paolo Lazzaro had previously convinced Buis to make Brescia the European source of compression chillers. Buis committed $18 million making Italy key to Clayton's European strategy. Instead of focusing on the entire European region, Lazzaro concentrated his efforts on the chiller line of Italy, successfully growing the business to 85% of the Italian market. However, he failed to expand compression chillers outside of Italy and failed to develop broader marketing (Bartlett et al., p.5). Lazzaro also focused his attention on developing political relationships, which was beneficial in acquiring government contracts, although these same relationships caused him to refuse permanent and temporary layoffs when Italy faced trouble.

External Factors

The union, Federazione dei Lavoratori della Manifatture (FILM), enjoys generous member benefits. Layoffs are permitted only for good cause, but even the temporary layoff provision Cass Ingrazione Guardagni (CIG) has not been utilized. Upon Arnell's arrival, there was fear of plant closure and mass layoffs. These fears lead to staff concerns and intense political pressure due to government contracts. Moreover, August is vacation season in Italy and leadership changes caused disruption to normal expectations of time off.

Other contributing factors include a 27% increase in steel prices realized over the past two years. Also, Clayton products face stiff competition from Asian competitors whose products are 15% more efficient than Clayton's and offered more features at lower prices (Bartlett et al., p.5). Clayton SpA also faceds challenges regarding the European view of air conditioning