3.3. Company Resources
3.3.1. Human resources
HR management in ATRAC is performed internally, as company management believes that the skills required from new employees can be recognized only by industry professionals. The company doesn’t have dedicated HR personnel, and most of the HR functions are performed by a member of senior management. As most of the managers are usually fully occupied by their everyday workload, the HR activity likely suffers from lack of attention. The current HR system uses an “averaging” approach that doesn’t allow the retention of the top paid personnel needed for differentiation, and overpays in the LT segment, which can be served by a cheaper workforce. In addition, cost or differentiation preferences of senior managers are likely to affect the priorities in hiring and retaining personnel.
3.3.1. Human resources
HR management in ATRAC is performed internally, as company management believes that the skills required from new employees can be recognized only by industry professionals. The company doesn’t have dedicated HR personnel, and most of the HR functions are performed by a member of senior management. As most of the managers are usually fully occupied by their everyday workload, the HR activity likely suffers from lack of attention. The current HR system uses an “averaging” approach that doesn’t allow the retention of the top paid personnel needed for differentiation, and overpays in the LT segment, which can be served by a cheaper workforce. In addition, cost or differentiation preferences of senior managers are likely to affect the priorities in hiring and retaining personnel.
The strength of the current HR policy is that it allows the hiring of technical specialists, and it can pinpoint the requirements needed for the LT and WE markets. The weakness of current HR management is that company doesn’t address the soft metrics that is needed for change management. To overcome this weakness, the company will require the help of an organizational change specialist, who is needed for both strategies.
Whether the first or the second alternative is adopted, the company will need to separate HR management into a dedicated, stand-alone activity that allows higher priority given to HR; in addition, it must harmonize HR management with the company’s strategy, either cost or differentiation. To empower an HR manager to carry out needed implementations and avoid the influence of the operational manager’s preferences, the HR position needs to report directly to President and have an authority level equal to the GM’s.
3.3.2. Operational resources
Currently, the company’s operational resources support all the activities of the company. Most of the routine operations are performed on the customer side. The warehouse space is needed only to store parts supply and inventory stocks. The outside nature of the service-customer or sales-customer relationships suggests a certain independence of key personnel from the company’s location. Thus, the major strength of the company’s operational resources is that the company could base itself even in remote locations without significantly reducing its operational efficiency. The only difference between the LT and WE segments is that WE service needs to be closer to the users, as service response time is important.
To enable independent cost and differentiation strategies within BC and Alberta locations (alternative 1), the company needs separated facilities. One of the spin-off companies with a low cost strategy could be located in a remote area with low rent costs. WE operations could be left in their current central locations, using smaller premises, as the WE operations will be smaller than ATRAC’s currently. The WE business does not require huge inventories of equipment.
As the second alternative does not require facilities separation, from the company resources point of view, the implementation of the second alternative seems to cause least concern. Adoption of the first alternative requires physical separation of the operations, but location-independent sales and service forces make this separation possible. In addition, by downsizing the current operations in the expensive central areas and moving cost operations to cheaper remote areas, the company will be able to execute the needed separation with minimum financial impact. The smaller central location needed for WE and a more remote location for the company operating in LT will allow reducing the operating costs in both segments. Thus, from the company resources point of view, the first alternative seems to be preferable.
3.3.3. Financial resources
Evaluation of the proposed alternatives is indicated in Table 3, following.
Assumptions: To compare two alternatives, some assumptions are needed. As revenues from LT and WE segments are approximately equal, the two spin-off companies which would result from the first alternative would be similar in size. The current key personnel - sales and service staff - in ATRAC total approximately 50 people. For simplicity, it is assumed that sales and service salary expenses are equal. The new company differentiator will have half of the current key personnel, about 25 people. The differentiation model assumes that wages for personnel will be higher by $15,000 per person per year. The facilities rental expense of a new “cost” company is likely be offset by the lower rental cost of downsized existing facilities.
The second alternative suggests that company structure stays the same. The second alternative doesn’t require a company’s relocation. The current key personnel - sales and service staff in ATRAC (50 people) - will stay with the company. All of the key personnel will follow the differentiation model, which assumes higher wages for personnel. In this case, the assumption is that wages will be higher by $8,000 per person per year, due to lesser degree of differentiation as compared to that of the first alternative. The HR and organizational change specialists are needed for both models. In the first alternative, the HR manager can work for two companies; thus his salary will be relatively higher than in Alternative 2.
Benefit Assumptions: All costs and benefits are considered on an incremental basis (compared to status quo). By following Alternative 1, ATRAC could expect to increase its market share by 7 percent in the WE segment and 5 percent in LT, as compared to the status quo. By following Alternative 2, ATRAC could target a 5-percent market share increase in WE (lower than in Alternative 1, due to the lesser degree of differentiation) and 5 percent in LT. The increase in LT is estimated at approximately 5 percent for both alternatives, as performance of both the cost company (Williams Machinery) and the company differentiator (Mason Lift) suggests that the same market size can be achieved by following either alternative. The discount factor used in cost benefit analysis is 15 percent. The targeted market expansion is planned for the fifth year. The revenues in the first, second, third and fourth years are planned as a percentage of targeted. The service revenue is approximately equal to sales revenue.
The resulting table compares the alternatives. The analysis of the alternatives is performed on a net present value, cost benefit ratio and internal rate of return basis.
Table 3: Alternatives investment evaluation
Observations and analysis:
The cost benefit analysis suggests that the first alternative is preferable. The better results are achieved mostly by reduced dependency on higher WE pay rates and better market performance, due to “pure” cost and differentiation approaches. The analysis of the alternatives seems to support the logic that the differentiation for the entire company would prove more expensive than differentiation only in one WE segment.
Summary of Alternatives:
The internal analysis of ATRAC shows that the company possesses most of the resources and capabilities to pursue either alternative. All senior managers have reason to support both alternatives. To proceed with one of the alternatives, however, ATRAC needs to change the current company culture. The major cost-benefits metrics provide an additional incentive for the senior managers to support the proposed alternatives.
4 Conclusion and recommendations:
The industry analysis performed in this paper shows how opposite market drivers affect both industry segments. The two biggest industry segments have opposite market trends, a fact that poses extra challenges to any company that simultaneously tries to compete in all segments of the market. To address the market forces towards low cost in the lift truck industry segment and the forces towards greater differentiation in the warehousing equipment segment, the company needs to readjust its current strategy. The paper suggests two alternatives. The first alternative considers the company restructuring into two independent companies that operate in different industry segments using contrasting strategies. By adopting this alternative, the company could address the dominant market drivers in both industry segments in the most efficient way. By following this alternative, the entire company will benefit from operating as independent “pure play” companies.
The second alternative proposes a strategy alignment towards differentiation, which will include a higher degree of harmonization between the company’s two biggest operations. The differentiation in one industry segment will facilitate differentiation in the second, and vice versa. By following this alternative, the company will benefit from the synergy effect between the company’s two major operations.
The industry analysis performed in this paper shows how opposite market drivers affect both industry segments. The two biggest industry segments have opposite market trends, a fact that poses extra challenges to any company that simultaneously tries to compete in all segments of the market. To address the market forces towards low cost in the lift truck industry segment and the forces towards greater differentiation in the warehousing equipment segment, the company needs to readjust its current strategy. The paper suggests two alternatives. The first alternative considers the company restructuring into two independent companies that operate in different industry segments using contrasting strategies. By adopting this alternative, the company could address the dominant market drivers in both industry segments in the most efficient way. By following this alternative, the entire company will benefit from operating as independent “pure play” companies.
The second alternative proposes a strategy alignment towards differentiation, which will include a higher degree of harmonization between the company’s two biggest operations. The differentiation in one industry segment will facilitate differentiation in the second, and vice versa. By following this alternative, the company will benefit from the synergy effect between the company’s two major operations.
The major decision criteria for proposed alternatives are increasing the company’s market share and providing additional growth for the company, which is operating in a mature industry with very limited growth potential. Both alternatives are consistent with company’s internal resources and existing infrastructure. The first alternative seems preferable, as it suggests fewer investments, better benefits, and better utilization of the managerial capabilities. Both alternatives are feasible, depending mostly on the willingness of the company’s management to anticipate changes.
By analyzing the two alternatives, I conclude that both the financial projections and management preferences support the first alternative. This being the case, it is entirely reasonable that senior management should implement this choice.
summary alternatives case analysis forklift industry
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