Sunbeam Case Study

RSM429

HW1 Sunbeam Case Studies

Q1:        With the appointment of Albert Dunlap as CEO and other newly appointed managers, Sunbeam had taken several actions to initiate the restructuring plan. It revealed a 3-year growth plan for its core businesses, which was to double the revenues, increase operating margin to 20% of sales and increase the Return on Equity by 25%. By applying the cost reduction strategy, product differentiation and geographic diversification. It would generate substantial cash flows over the next three years and enabled the company to be net debt free during 1997. It reduced costs by keeping all the company’s core business and marking all non-core business for divestiture.  Also, it consolidated all the regional headquarters into one worldwide corporate headquarters, reducing relevant personnel by 60%. Moreover, it reduced administrative personnel by 50% and production facilities from 26 to 8 because of the sale of non-core business. In order to differentiate the products from other competitors, the company plan to introduce 30 new products a year which would account for 30% of the sales. They have also considered to diversify geographically. The company aimed to globalize operations by adding distributors, completing licensing agreements and forming joint ventures internationally.

In my opinion, cost of developing the innovative products is inconsistent with its cost reduction strategy. If their goal was to cut capital spending and therefore drive revenue, they should not consider introducing 30 products a year. This could be a huge burden from its original plan. Moreover, in order to reduce costs, they have dismissed half of the employees and condensed all the headquarters into one. However, they also plan to globalize the company by forming joint ventures and completing licensing agreements. How can they keep this strong relationship when they fired half of the employees? It is most likely that communications between distributors and headquarters became a trouble as they don’t have enough staff to stay in touch.

Q2: If I am a strategic consultant, I would think that it’s indeed beneficial if the company controls its capital spending, as Sunbeam applied its new strategy of closing its all non-core business and lay off half of its employees. However, this can also be a potential problem because Sunbeam had just closed all of its non-core without thinking about whether some of the business may operate well and could improve the revenues and net income. In order to maximize the company’s worth, it is necessary to discard those non-core business with losses and still keep the profiting ones. In this way, the non-core business can still create value for the company. Then, it’s really necessary that the company looks at its future position internationally and explore all over the world to reach its customers. Sunbeam plan to expand overseas and reach its strategic 300% increase in international sales. However, with its drastic cost reduction strategy, it may increase the company’s financial risk as well as operations instability. With all of the burden on hand, it could further harm the relationship with its customers as well as the brand loyalty as it has fewer employees.