The CEO ’s Dilemma

If you are a regular reader of my blog you will almost certainly know by now that on the 14th. of September 2007, my book 'Making a Difference' will finally be launched onto the market. For this week’s blog I have decided to share with you a section from the end of Step 2 in the book ‘The CEO’s Dilemma', exactly as it appears in the book. You may also know that as from the 14th. of September onwards you will be able publish your own solution to the dilemma directly on the book’s website. By doing so you could also win some great prizes, including admission onto the Vlerick Management School’s course ‘Mastering Interim Management’ (worth wore than 4150Euro’s + VAT), or an Acer TravelMate Laptop computer and many other prizes (the website will have more details on or around the 14th.). For now you simply need to know that your answer (or advice, however you like to call it) must not be longer than 500 words.

Because I am in a generous mood, I have one additional bonus for my blog readers: If, when you have read the dilemma, you would like to ask a question directly to either David the CEO, or John the Sales Director, or Peter the Production Director, or Samantha the Marketing Director, or indeed to Matthew the CEO’s bank manager, you may do so by using the comments section of the blog. You will receive an answer….

'The CEO's Dilemma'

David, the CEO of an electric lighting manufacturer, saw that year on year his profitability and sales were falling behind, to the extent that urgent action had to be taken. He was losing market share and at this rate his business would go bankrupt in less than 18 months. So David called his senior managers into his office one by one and asked each of them the same question.

First he asked John, his loyal sales director: “You’ve worked with us for fifteen years, why do you think it is that in the last five years our results have become steadily worse?” The sales manager thought it over and said: “The problem is that the market is changing faster than we are – we have been too slow to adapt. Our range of lighting is far too limited; we need more models, more colors, we need to offer our distributors a complete product range so they don’t look elsewhere. We have to become their sole supplier, so we don’t lose so many deals to outsiders.”

The CEO then called in Peter, the production director, and asked him the question. Peter replied: “The problem is that we have been adding more and more products to our range. We now have so many varieties of every type and color, that our production costs are running too high, because the production runs are too short and uneconomical. The solution is simple: cut all the models that are not selling well and reduce the number of colors and varieties for the others. In short, trim down our catalogue and offer only what is economical to manufacture. We may lose some business, but we’ll become far more profitable.”

Next the CEO called in his youngest board member. “Samantha, as Director responsible for marketing what do you suggest we do to turn around our worsening financial results?” “That‘s easy”, she answered, “Go up market, go direct. We have become too remote, our product range is too narrow and old-fashioned. The production department cripples us by telling us that things can’t be done! Our customers know what they want, we just need to offer it to them at a price they are prepared to pay. So what we should do is shut down our production, source all the lighting products globally, and re-brand them with designer labels endorsed by celebrities. We keep in touch with our end customers by opening showrooms in strategic locations, staffed with trendily dressed lighting consultants, and we cut out the distributors by selling directly on the Internet.”

Lastly the CEO spoke with his bank manager, Matthew. He had known him for twenty years and they had built the business together, the bank having provided the loans for starting up and subsequently met their financing needs, whether for production equipment or new offices. Matthew suggested: “If I were you David, I would complete the modernization program we have so often discussed. After all it’s been more than ten years since you last purchased new machinery. The machines you have are no longer as efficient as they could be. Without new equipment, you can never become as cost-efficient as your Asian competitors.”

The CEO went home for the weekend and reviewed the four basic arguments that his advisors had put forward. Each of them was so confident of his or her approach, that they had all guaranteed sure-fire results. But which way should he turn? He made a single PowerPoint slide summarizing each of the four key arguments. Much to the annoyance of his wife, he pinned it to the wall beside the bed so that he could focus on it before going to sleep. He told her that it could mean life or death to the business, and that the quality of their retirement years depended on it. Although she wanted to help him she could only say: “David, go to sleep. In the morning everything will be much clearer, and you will work it out.” Sure enough, the next morning David woke up and came to a decision.
Written by

Harley Lovegrove

Harley is a dynamic 'we can do this' kind of person with a successful track record of working for a wide variety of companies in all kinds of sectors. From very small family run businesses right through to giant multi-nationals. Over the last thirty five years Harley has built a reputation for inspiring those around him to rout out and tackle the core problems facing their organizations. Armed with a wide range of pragmatic tools that he has developed over the years, Harley is able to help his clients bring about long-term, sustainable solutions, while having fun at the same time. Harley is a motivational 'people person' who is nonetheless tough on efficiency and delivery. Apart from being well known for his highly entertaining and motivational speeches, Harley is also a blogger and author of four books; 'The Change Manager's Handbook', 'Transition', 'Inspirational Leadership’ and ‘Making a Difference’.

22 responses

Leave a response
  1. C David, CEO -
    <p>Dear Filip,It might seem a little odd, but I always find it difficult to comment on the expertise of my team and especially the senior management team. Apart from Samantha, who has only been with us for just over two years, I have known Peter &amp; John for a very long time and what I can tell you is that they have always been extremely loyal to me and the company. Matthew too has always given me good advice and been very supportive when needed.As far as I am concerned they are all very professional and obviously highly experienced in their work. But I have never worked for another company, so I find it difficult to compare them with other directors. Obviously, over the years I have come across similar people in similar positions (especially with suppliers and at trade shows etc.) and sometimes I am very impressed with what I see and wonder what my business would have been like if they were working for me instead.So to be concrete, I would say, that I find my directors to be sufficiently expert in their roles, especially Peter – he knows everything anyone can know about lamp unit production. They are all extremely reliable, always on time, very dedicated, hardly ever take a day off (even for holidays), they work together pretty well, always remain polite in board meetings, even when the discussions get a little heated. It is obvious to me that often, in disputes with Production, Samantha and John tend to pull together, which was obviously not a problem before we had an ‘official’ marketing director. However, I am not aware of any deep seated animosity and when the debating is over, everyone gets on with their work as normal and the subject is closed. Kind regards,DavidCEO Atlantic Lighting Ltd.</p>
  2. P Werner Peiffer -
    <p>Hello David,In order for you to devise a strategy that really works for your company, it is important to be crystal clear on the one aspect of your business that meets the following two constraints: what is it that you and your team can do better than anybody else, and that in the same time you and your team are really passionate about? It can be anything: provide better quality lamps than anybody else, be the cheapest, be the one that can best/fastest build to order, be the one with the sleekest designs, be the one with a distribution network that runs deeper or broader than anyone else&#039;s... Literally any aspect of your business will do as long as that is what you and your team truly excel in (do back it up with facts; personal convictions -yours nor those of your directors- will do) and as long as it gives you and your team true professional pleasure. Before getting back to me you might consider doing a group session with your directors on this topic as such session might reveal deeper seated animosity than meets the eye in daily operation. It will be good to get such differences of opinion, if any, on what is the true core of your business, out in the open.Now, in all fairness, I&#039;m giving you here a tough assignment. Maybe there will not be a single thing that all of your directors and employees are unanimously fond of. Well, that&#039;s OK! As long as the vast majority is really behind it, you may have identified the cornerstone of your business. Good luck! Hope to hear from you soon.Kind Regards,WernerDirectorGETBIS Business Improvement Solutions Ltd.</p>
  3. T David The CEO -
    <p>Dear Werner,Your question / suggestion is gratefully received. I will give it some careful thought and come back to you, once I have discussed it with my board, I have some ideas of my own, but I will follow your advice and discuss it with the team first!</p>
  4. C David, CEO -
    <p>Dear Werner,We had our monthly board of directors meeting this morning, which I extended by half an hour to carry out the exercise you suggested. I must say the results were very surprising. I thought we were going to have a great deal of dissention, and conflict but strangely the team very quickly came to one unifying point (there was not any doubt about it)!You asked ‘What can we do better than anyone else?’ and ‘What is the team passionate about?’ The answer was striking:‘The Brand’ Everyone agreed we had a fantastic brand. The Atlantic Lighting name in the industry spells ‘quality’. Many of our competitors are really jealous about it. Our paint finishes are better than anyone’s, our general finishing of non coated products is easily as good, if not better, than any of our competitors. Our overall quality is excellent. We pride ourselves on ‘no rough edges anywhere’. Even our switches are better. No jagged clicks, just nice, smooth, confident, ‘clonk’ sounding switches - or very smooth gliders (on our dimmers) that give the feel of re-assurance and quality. The whole board was unanimous on this, our brand, our quality.(At trade fairs our competitors are always trying to squeeze out of us how we do it so well. They turn our lamps upside down and even shake them to hear if there are any rattles or loose joints).The conversation during the brain storming session also spun on to our flexibility. We can make almost anything. We can make important customizations at very short notice. We are also able to switch from one kind of product on a given production line to another at very short notice. ‘Our customers do not have to wait for our quality’ is what John pointed out, during the meeting. For Peter and Samantha it was ‘The Brand’ that stood out. The only person missing was Matthew, but I phoned him this afternoon, and after first saying ‘good quality products at realistic prices’ he quickly confirmed that indeed it was the brand and its perceived quality that stood out as the most important element of the business.I hope this helps you in your assessment? I am very curious to hear what you recommend for our business. But I know I have to be patient and wait for your report, after the 14th. of September 2007.Kind regards,DavidCEOAtlantic Lighting Ltd.</p>
  5. H Yves Hanoulle -
    <p>I would start by putting all of these people around the table and let them talk to eachother. Let them explain why their idea is so much better then anybody else. Or figure out how they can combine idea&#039;s.</p>
  6. P Bertrand Potier -
    <p>Considering the relative consensus on the need to act on the Production (either to decrease its costs or increase its flexibility), I would want to discuss with Peter once more and discuss with him about the possible alternatives, ranging from full outsourcing to investments into new production equipments.Peter, what about a mixed solution where the core production would beoutsourced while the personalisation, customisation and more advanced products would be done internally on renewed production system? On topof your current responsibilities, you&#039;ll also be managing our outsourced production partners. What do you think?</p>
  7. T Peter the Production Director -
    <p>Dear Bertrand,I do not agree with you that there is a consensus with regards to production. The Problem, as I see it, is with Sales. They simply keep adding more and more products to the range. And Marketing does nothing but encourage them! All this foreign travelling and business internationalization, I am not sure its what our business needs.Ten years ago, we had a nice tight range of high quality, dependable products, with a loyal stream of distributors and re-sellers. Today there’s no strategy, it’s all over the place. One minute I am making this, the other I am making that! We still have a few models that consistently sell well, year in year out – we should stick to them.As for managing the outsourced production, that’s not for me. Where would it be, India, China? That means more travelling! Outsourcing is not as easy as it seems, you have to make sure they make the units exactly as we do. The quality of the foreign production units, that I see, is nowhere near what we can make, apart from some of the Scandinavian and German brands, but they are more expensive than ours. But even they are beginning to move their production to China. No, I am not interested in managing a foreign plant, I have enough issues here in our own factory, if I take my eye off this, we will be in even more of a mess. I am in favour of manufacturing a limited range of high quality products, right here. I don’t mind some special customization units for very high value clients, but not all the time and certainly not the junk that sales and marketing want us to produce.</p>

Leave a response

*Required fields