Case study of Strategic Management - II

THE CASE OF CENTRALISED SALES

Submitted to :- Prof. V.S. Pai

Submitted by :-Anupam Bora (1004)AnshumanTewari(1003)

THE CASE OF CENTRALISED SALES Case Facts: Ashish Mulick, Professor of marketing at the J.L. Kellog School Of Business. Vinod Saraf, CEO of Pluto Engineering. Ashish Mulick is less than half the way of his presentation on the occasion of Hydrabad Management Associations day long workshop on strategic marketing. Ashish Mulick senses(using his sixth sense) the person(seemed like a CEO of a company elegantly dressed) sitting in the 4th row wants to speak to him. And Ashish Mulick was right the same person named Vinod Saraf wanted to meet and he met him during the lunch and the had a conversation with him. Pluto Engineering in the light engineering business for the last 53 years. Widely-held company run by professional manages. Pluto Engineering has functional organizational structure. Each 4 functions Manufacturing, marketing & sales, finance and HRM is headed by GM. Regional sales managers looking after the 4 zones reporting to Raj Chatterjee GM(sales & marketing) based in Mumbai. Over the year os 200 executives have built a nationwide network of 1600 dealers. None of them is exclusive to Pluto. Even when the machine tool industry was sputtering along at 8% per annum Pluto managed to a growth of 11%. Each of out 35 offering has a market share of 12-15 % in its category in a fragmented market, which is dominated by the unorganized sector. Pluto is performing quite well. This industry is set to grow by 10% per annum over the next 5 years. But Pluto wants to grow faster. Pluto decided to restructure into 3 independent profit centres: Power tools, Industrial Belts & Hydraulic Hoses. As each of them reached a threshold level of sales it will spun off as a SBU. Each SBU will have a CEO: Raj Chatterjee, Head Belt; Ashwin Kumar, VP(Manufactuing) head Tools; and a new hiring for Hydraulic business. CEOs will have total control over manufacturing & marketing; only staff functions like Finance and HR, will be looked after by the corporate center. They Have also decide to centralize sales Creation of Central Sales Organisation(CSO). Mr. Saraf thinks CSO is the solution to his problems. That where he needed assistance from Mr. Mullick. Mr. Saraf called a meeting with senior manager and his biggest dealers to discuss the advantages and disadvantages of a CSO and wanted Mr. Mullick to attend the meeting.

 Mr. Mullick was impressed by the mild manner of the CEO and was prepared for change even when the going was good. Meeting was held at Plutos modest board room in gray block in Secunderabad which hosted the corporate headquarters as well as its largest manufacturing facility. Present people in the meeting: Mr. Chatterjee, Anil Marwah, head (finance), Prabhakar Das & Sunil Agarwal (Largest dealer in west India). Mr. Mullick said that making profit centers into a SBUs is a good idea and but it will depend on how you will manage your marketing and sales function during the transition. Mr. Agarwal show his disagreement on if he has to deal with 3 salesman. Mr. Chatterjee anticipated this question and he talks about a single entity which only look after the sales. CSO will sell the products produced by 3 profit centres. Marketing activities like product development, advertizing and promotion, brand building and resource- allocation will be the responsibility of the CEOs of the profit centres. CSO will be headed by a CEO, who will be at par with them. Sunil Agarwal was not convinced to creating a CSO , pointing out that most of the companys products are end user specific and the company only need to interact with the dealers who are their primary customers . But countering this , Anil Marwah(head finance) said that dealer accounts for 60 % of Plutos ales , and remaining 40 % sales are done to larger account companies , who purchase in large volumes and like to deal directly with the company . o Margins are also high in large account sale i.e. 11% whereas dealer sales margin is 8%. According to Saraf , the strategy is to exploit large accounts which is growing at 25% , to which sales to dealers is growing at 10% per annum. Also , its nearest rival Bharat Engineering , 70% of their turnover accrues from sales to large accounts. According to Mr. Mullick the choice of CEO will have bearing on the success of the change initiative in Pluto . Mr. Prabhakar woul be the person a the new CEO of the CSO as Mr.Saraf pointed out . However Mr. Pravakar had two objections initially : His background as a HR with no experience in sales and marketing His understanding that CEO would be redundant once the SBUs become operational. Positive points regarding one HR person becoming CEO according to Mr. Marwah: Being a HR person he can identify the skill gap in sales people . Quickly develop suitable training interventions to bridge the gap. And Since the primary objective of creating the CSO is to develop selling competencies; so the redundancy of the CSO will mean success only , not a failure .

 According to Prabhakar , the company should start considering process oriented factors for evaluating salespeople like time spent on calling new customers, proportion of enquiries that lead to sale rather that evaluating only on the basis of their Annual billings. Mr. Agarwal said that the CSO will result in a trade-off between the cost and volume . o He pointed out the fact that one of Plutos competitor India Machine tools , once market leader in the segment adopted the same SBU structure , and their cost spiraled up then out of control. Answering to the point Mr. Mullick said that companies that willingly adopt changes should look beyond the short term implications like those , and everyone from sales reps to CEO needs to understand what drives profit . According Mr. Saraf there are four things that a CEO should consider during such a dilemma what Pluto is going through . They are : Does the structure facilitate the development of competencies Does it enhancing the managerial cabilities Does it provide for the transfer of knowledge across business units . Does it leverage a companys resources optimally .

Mr. Mullick gave his consent to the new initiative . He also put few examples which are also following similar restructuring like BPL,GMs Saturn division . Similarly Nestle operates through a CSO , whereas Cadbury could not go along with similar strategy . So, according to Mullick it all depends on implementation, managing changes effectively . There are also some disadvantages associated with CSO like: Personality clashes between head of the CSO and heads of the profit centers . Finally Mr. Sharaf said that there is no reason why such clashes will happen in Pluto case as because they have been working together more than a decade and understand each other very well. He also hopes that sales people will also welcome the new move .

Questions

Q.3. Identify the problems being faced by Pluto Engineering? Should a HR professional be chosen to head its CSO? If yes, elaborate. If not what should be done? Ans.3. The problems being faced by Pluto Engineering are as follow:

They are not focusing on large Accounts which has potential to give more business in future. Where the are focusing on Sales to dealer which is growing just by 10% per annum which is less a compared to Large Account which growing at 25% per annum. They are in a bit confusion in terms of restructuring of the organization that how to do the restructuring to benefit and increase the growth of the organization.

No, HR professional should be chosen to head its CSO. As this a central and specialist organization for the sales and will perform a responsible job of sales of product produced by 3 profit centers so, it needs have a specialist person with a good experience to head CSO. HRM can be dealt by a the HR department in the organization. This firm needs to have clear strategy and policies to perform its work of sales for the 3 profit centers. So this designation should be full filled by a professional of Sales as Plutos concern is also to increase the sales and register more growth which is possible as the industry is growing with a good pace. Que4:Given the company industry context and its business strategy , how should Mr. Vinod Saraf reconfigure the company structure so that the strategy implementation is successful and the growth objectives are achieved . Sol:Current structure : Four functions : marketing & sales , Finance , Operations and HR One GM heading each function . There are Regional sales managers looking after 4 zones who reports to the GM Sales and Marketing , based in Mumbai .

How to reconfigure

It is very important to know that implementing and executing strategy is primarily an operationsdriven activity revolving around the management of people and business processes. So reconfiguration should should result into a structure which support such management of people and business. New structure would be like below: Initially 3 independent profit centres ( which will be spun off as SBU after reaching threshold sales level): Power tools headed by Ashwin Kumar(CEO) Industrial belts headed by Raj Chatterjee.(CEO) Hydraulic houses headed by a new hire.(CEO) One Centralized Sales Organization(CSO) which should be headed by a person from Sales or Marketing domain ( In the caseit is assigned to Prabhakar Das) as CEO. The regional sales managers of four zones now will have to work directly under the CSO.

CEOs of the profit centres will have total control over Manufacturing and Marketing . There wont be sales and finance as separate departments in the profit centres. The corporate centre will look after staff functions like HR , finance and administration . So , there can be one HR executive to look after each profit centre and the CSO. Because that is required to see the work structure and remuneration given to employees in these different centres and to understand issues related to particular centre. The HR in the CSO would be helpful in making arrangements for trainings which will provide expertise in selling all products . There will be separate financial reports for each profit centres and the CSO and one consolidated for the whole company as a whole. Whole sales force will work only under the CSO .

Most importantly under the CSO , there needs to be two departments : One looking for dealer sales The other focussed to large accounts . This is because selling to both markets requires different set of competancies . So , by having two departments it will be easy for the organization to train the sales man or to prepare better . Another important point is that a separate committee has to be formed to ensure proper resource allocation among all profit centres .

Some more aspects related to the restructuring are : Degree of autonomy:- All the profit centres and the CSO should enjoy operational freedom . Control:- Each profit centre should be made financially accountable . They should share the reason behind the restructuring among all employees ranging from sales people to top management.

Above all , Mr . Saraf shuld inculcate motivation to the sales people , and communicate the rational behind the staregic initiative among all the employees while doing reconfiguring the organization structure , so that strategy becomes a success and objectives are achieved.