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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