Tuesday, June 25, 2013

Case Study: Paper Converters Limited

CASE STUDY: Paper Converters Limited

Paper Converters was formed in 1988 following the merger between Dyson Paper Ltd and Jones Sales Agents Ltd.
Alan Dyson, who founded Dyson Paper, is a production engineer.  All of his working life he has sought to instil a culture in which every employee knows what their job is, and that each individual’s job forms part of the greater whole.  He is a very systematic man who believes that operational efficiency is the result of structure and control.
Barry Jones, who founded Jones Sales Agents, is a salesman.  Barry believes that success is achieved when each individual is prepared to accept responsibility not only for their own work, but also for the outputs of the team as a whole.
The two men had been great friends since childhood although their respective companies were located 60 miles apart at the time of the merger.  This was because when Alan Dyson founded his company in 1983 the British Government was offering incentives for businesses to start up in the town of Corby.  This was during the recession of the early 1980s and followed the closure of a steelmaking plant in the town which had been the major employer.  This government intervention was an attempt to mitigate the level of unemployment in the town.  The offices of Jones Sales Agents were in Stevenage which is where both men grew up.
Immediately after the merger the two parts of the organisation continued to operate from their separate premises.  Until 1989 the main product lines were cash register rolls sold to major UK retailers, ASDA and Boots the Chemist were the largest customers.  At a strategy meeting in early 1989 Barry Jones suggested that the company should refocus.  Marketing research indicated that the customers of the retailers, ultimately the end-user of Paper Converters products, tended to keep the cash register receipt for less than two hours.  The usual process was that the customers checked their purchases against the cash register receipt and then discarded it.  As the product was regarded as a throw-away product the retailers placed little value on the cash register roll and purchased mainly on the basis of price.  This meant that Paper Converters operated on low margins.  Barry was looking for markets where they could use their existing technology and experience yet achieve higher margins.  As their business was basically paper roll manufacturing he looked for markets that required paper rolls.
During the 1980s fax technology had improved to the point where machines had reduced in price from over £3,000 each to less than £500 each.  Forecasts were that prices would drop even further due to technological improvements and economies of scale.  It was predicted that by the mid-1990s virtually every office and many homes would be using fax machines.  In 1989 fax machines had become the most common way of sending documents that were required urgently.  These documents usually contained important information and so copies of the faxes were highly valued by the users.  This contrasted starkly with the value that was placed on cash register receipts.  Fax machines generally printed their output on thermal paper rolls.  Although Paper Converters used plain paper to produce cash register rolls Alan Dyson agreed that to produce fax rolls all they had to do was to manage the tension applied to the paper during winding because thermal paper was not as strong as plain paper.  Although thermal paper was much more expensive the gross margin on a fax roll sale would be ten times greater than a cash register roll sale.  The directors approved the refocus on the condition that the existing business with cash register roll customers was not neglected.
Within five years sales had increased to the point where, despite the addition of new machinery and the acquisition of premises adjacent to the original unit, the production capacity of the manufacturing unit was being stretched to its limits.  Sales forecasts indicated that company would continue to increase their market share.  The production capacity was quickly becoming a limiting factor in terms of further growth.  The directors decided that the way forward for the company was to acquire larger premises.  When the directors identified the building that would enable them to install the additional machinery required allowing production volumes to support sales volume forecasts it also decided to relocate the sales office staff into the same building.
Although the staff from the sales office already knew the administration and production staff, they had never worked particularly closely together.  Within one month of all staff being relocated onto one site tensions among the staff were becoming apparent.  Within three months both Alan and Barry were receiving complaints from members of their teams about the “unreasonable” behaviour of the other staff.  The directors could see the results of the tension, but could not identify the cause.  As a result the tension has continued.
After a period of further sales growth, particularly in West Africa and the Middle East, production capacity was again becoming an issue.  The directors were reluctant to move premises again as they did not want to further increase tensions.  They engaged a consultant to investigate their situation and after two months he produced a report.  The report put forward a persuasive argument that by opening a production unit in Zambia, a republic in central Africa, they could meet the growing production requirements and at the same time significantly reduce manufacturing costs.  Following several years of dramatic economic decline the Zambian Government had received aid from the World Bank to fund economic development.  In order to receive the funding Paper Converters Ltd had to enter into a joint venture with a local Zambian company.  The joint venture partner was an executive agency of the Zambian Government.
After detailed investigation of a proposed joint venture the company signed an agreement with the Zambian government and six months later production started in Lusaka.  Alan and Barry had expected there to be some initial teething problems but three years later the joint venture was still not delivery the expected results.  Although some cost savings were achieved the savings were only 20% of expectations.  In order to maintain a degree of control over its investment the Paper Converts board of directors had installed a system of reporting and control procedures that mirrored the procedures in the UK organisation.  Although these procedures had been successfully implemented in the UK for several years the directors could not understand why the Zambian staff seemed to ignore procedures relating to:
·         levels of authority for expenditure
·         appointment of senior managers
·         separation of responsibilities for approving payments
·         approval of credit accounts
·         selection of local suppliers
·         management reporting
You are a student who has approached the company looking for an organisation on which to base your management project.  After a brief discussion with Alan and Barry you mention that research has shown that the biggest cause of failure to meet post-merger and expansion expectations is a clash of cultures, both organisational cultures and international cultures.  Alan and Barry have asked you to prepare a report for them that explains this point in more detail and recommends what could be done to overcome, or at least minimise, the effects.

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