Leading Org. Culture & Change
Case 4: Alto Chemicals Europe (AR)
1. At the time of Graaff’s appointment, how good a job do you think the sales force was doing?

The ACE’s headquarters organization was by product group and the subsidiaries was by function. The interaction could be best described as a matrix relationship. In that case there was a dual sources of influence on product and subsidiary management.
Stabilizers had experienced an annual growth rate averaging less than 3% during the 1980s. They were considered as a matured industry as all potential applications have already been discovered and no rapid growth was expected. To enter the market, the company tried to convert customers from Barium to Tin (the company’s variety of stabilizer) with initial discounts of 2 – 3% below Barium prices and a better product performance. The entry strategy placed its sales attention on the segments for which price played a relatively significant role. Producers to whom the cost ratio of stabilizers was high. ACE was not the sole supplier of Tin in the market, but for the others it accounted for a minor share of their stabilizer sales.
Tin stabilizers were sold through a specialized sales force in all the subsidiaries. They were compensated primarily on a fixed salary and they were able to manage their sales quota through few large clients by offering them discounts. There was Conflict among subsidiaries.
Selling was too price oriented which led to the underutilization of sales force potential. Conversion was a time-consuming process and the proportion of selling time spent on it had declined since the mid-1980s. Due to matrix structure performance measurement indices for product management and subsidiary management would be different. Product line’s focused on profitability and subsidiary management focused on sales volume. All these resulted in low profit for the company.
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2. What are the key trends that Alto faces in the environment as of late 1980s? In light of these trends, carefully examine Graaff’s revision of the stabilizers strategy. Was it an appropriate response to the environmental changes? Why or why not?

The stabilizer strategy set in motion in 1980 had achieved most of its objectives by 1990. ACE’s stabilizer share in Western Europe was nearly 18%. The proportion of Barium in total company sales had declined over the years. As of mid-1989, Tin stabilizers were being produced by the company’s own facilities and stabilizer sales force was calling on a total of 170 accounts in the region.
To improve the profitability Graaff devised a strategy in which the headquarters will decide sales target and prices for various subsidiaries.
Focus was on increasing the customer base medium and small clients and segment which were less price sensitive. The company should be a price-setter rather than a price taker for converted accounts and should leverage the competitive advantage it has with its specialized sales force and technical services. The longer-term objective remained a growth in volume. This was essential to operate at an economical utilization rate.
This strategy would reduce conflicts between subsidiaries. It will improve the customer mix of the organization and will reduce the risk as now the company would be less reliant on few large customers. In the end it would improve the profitability of the organization in the long run and help make Polystab a brand with its unique service as a differentiating factor.
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3. Evaluate the actions taken so far by Graaff to implement his strategy. What should he do next? Why?

It may not be the right time to implement his strategy as market was declining. The sales force had to put more efforts as they have to sell to large number of smaller accounts as compared to few larger clients for same revenue. The selling time required for both type of accounts is same. Sales force was opposing to the new strategy as now the will be playing a subordinate role in sales matter. Retaining large and price sensitive customers in the same time would be difficult. The role of subsidiaries was decreasing in key decision area and this may reduce work synchronization and motivation of sales force. The relationship with clients that have been recently converted from Barium to Tin may become sore.
The sales force and subsidiaries’ management should be communicated of the issues with current strategy and the revised strategy is vital for the long run profitability of the organization. The variable component should form the major portion of salary and performance evaluation should be on the basis of new accounts added and sales volume. This would motivate the sales force in highlighting the strength of technical services and specializing to the client. Sales quotas should be set separately for the three types of accounts (Small, Medium and Large).
The revised strategy switches the focus of the sales force of the company from volume-oriented to profit-oriented. It would help ACE establish Polystab as a premium brand in the market by offering technical service and assistance through specialized sales force. There may be certain hiccups in the initial stages related to decrease in sales and lack of motivation among sales force. But the above mentioned recommendation will alleviate these issues and help improve the profitability of the organization in the long run.
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Total Words : 782 (713 – 787)