Sunbeam Case
1. The changes made by Al Dunlap gave him the ability to gain stronger control over the future of Sunbeam. His goal was to double revenue and dramatically improve operating margins, and he put in place a number of measures to achieve it. Let’s analyze each of these measures individually:
a) Replacing Senior Management team: Dunlap fired the entire existing Senior Management team and brought on people from his previous company, Scott Paper. Given their history of working together closely, this meant Dunlap could enforce them to adopt questionable accounting and sales practices which the previous senior management team may have objected to. Furthermore, he appointed Kersh – “a close lieutenant” to be in charge of operational activities such as finance, HR, MIS and purchasing functions. Having this sort of control on operational activities such as finance and purchasing gave Dunlap a lot of freedom to manage earnings in order to meet his ambitious goals.
b) Cost reduction strategy: Dunlap initiated two important cost reduction strategies of divesting non-core business and trimming the organisation to save expenses.
Divesting non-core businesses gave Dunlap the option of selling off non-performing assets which meant any losses that was being reported from these divisions would be done away with. Furthermore, this also gave Dunlap the option of writing off remaining inventory and then selling away any remaining inventory at a discount. Dunlap could then add the sales directly as profits which was a huge leg-up by itself. Additionally, with the PPE and being reduced, depreciation would also come down and hence would directly affect the Net Income of the company for that year.
By reducing the head count worldwide and more importantly, by consolidating all divisional operations in the same HW, Dunlap had greater power to influence regional managers to adopt uniform accounting measures and sales practices. Specifically, Finance, Risk and Customer Service
a) Replacing Senior Management team: Dunlap fired the entire existing Senior Management team and brought on people from his previous company, Scott Paper. Given their history of working together closely, this meant Dunlap could enforce them to adopt questionable accounting and sales practices which the previous senior management team may have objected to. Furthermore, he appointed Kersh – “a close lieutenant” to be in charge of operational activities such as finance, HR, MIS and purchasing functions. Having this sort of control on operational activities such as finance and purchasing gave Dunlap a lot of freedom to manage earnings in order to meet his ambitious goals.
b) Cost reduction strategy: Dunlap initiated two important cost reduction strategies of divesting non-core business and trimming the organisation to save expenses.
Divesting non-core businesses gave Dunlap the option of selling off non-performing assets which meant any losses that was being reported from these divisions would be done away with. Furthermore, this also gave Dunlap the option of writing off remaining inventory and then selling away any remaining inventory at a discount. Dunlap could then add the sales directly as profits which was a huge leg-up by itself. Additionally, with the PPE and being reduced, depreciation would also come down and hence would directly affect the Net Income of the company for that year.
By reducing the head count worldwide and more importantly, by consolidating all divisional operations in the same HW, Dunlap had greater power to influence regional managers to adopt uniform accounting measures and sales practices. Specifically, Finance, Risk and Customer Service