Your operating division is struggling in economic hard times. Sales are down by

Question

Your operating division is struggling in economic hard times. Sales are down by 10% from the previous year and the forecast for the next 3-year period looks flat. The entire local industry is suffering due to changes in government regulations and a reduction in planned funding from the federal government and from local governments.

One of the outcomes is some increased consolidation within the industry and there has been significant merger activity (1) among rivals and (2) among suppliers and distributors (backward and forward integration). There are no plans, as far as you know, about the corporate parent divesting your operating division. Also, your corporate parent told you that it has no plans for your business unit to acquire any other companies to make you more competitive.

Your business unit has about 400 employees and consultants:

340 Engineers

20 Program Managers and Business Development Staff

35 Administrative Staff (Accounting, Procurement, Finance, etc.)

5 consultants (this number varies from month to month)

As the General Manager, you believe that the staff is already cut to the bone and there is no room for reductions in force without affecting performance on existing contracts and programs.

You are bidding on several government programs that are key to the future of your business. Competition is fierce, because of the reduced number of government programs and the overall reduction in available funding for these programs. The customer is very sensitive to price. Your business development managers are advising that the winning prices are right around your breakeven costs, and they may be even a little lower if your chief competitors decide to be very aggressive and “buy in”.

If you lose any of these programs, you will have to lay off staff, which you are reluctant to do. If you bid at breakeven cost or lower, you will have serious issues justifying this to corporate management, which you believe may be positioning for more control over your business unit, including replacing you and your senior management. You have dug yourself a deep hole, so to speak.

You are preparing your position for the weekly staff meeting. What are you thinking, keeping in mind company strategies and the current situation and environment? What are the next steps to convince your staff to maintain their commitment and to convince your management that you the situation is salvageable?

Explanation / Answer

The division and the environment as a whole is stringent and meeting corporate expectations is difficult due to highly competitive market. The current thinking is to survive the division by getting contracts. Since, the company lacks work to demonstrate growth and provide work to stay viable, the best strategy is to get the work. The first thing is to take corporate management into confidence by demonstrating them that it is best for the company interest to quote for the new projects based on market to stay viable. It will help to gain the recognition and the profit can be churned by being more productive.

The second thing is to convince the staff by providing them a hint of the competitive environment and providing them information about the current scenarios. This also involves informing them about the need to improve the productivity and keep the company running and growth because growth of the company means growth of the individuals.    

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