Analysis of Clayton Case Essay Example

moving towards. This meant that Clayton were not preparing to offer products that customers would demand in the future. The overall effect of Buis’ strategy was to dilute the local subsidiaries’ efforts into areas where they were weak, while inhibiting their capability to capitalize on their strengths. This hit Clayton SpA (Italy) hard on the profitability front, and also reduced Clayton Industries USA’s overall preparedness to address future market requirements.

Decision Analysis I recommend that Peter Arnell hold off any further investments for now, and focus on efficiency measures in Clayton SpA (Italy) to restore profitability. This course of action directly addresses the immediate business problem of Clayton losing $1 million a month, and maintains Clayton’s overall strategic course as well, while still giving Arnell time and space to plan for future growth. Going forward, Arnell has these four options:

1. Follow the Italian managers’ suggestions for their market, and invest there
2. Invest in building capacity for modern absorption-chiller technology in Spain
3. Exit the European commercial air-conditioning market
4. Hold off any investments for six months, and tighten efficiency measures in Italy His options should be evaluated against these three criteria:
5. Profitability
6. Future (post-recession) potential for growth
7. Acceptance from all stakeholders A brief analysis of each decision option vis-a-vis the criteria is presented here:

Follow the Italian managers’ suggestions for their market:  Profitability: This decision may or may not lead to profitability in the long term, based on the implementation.

But it will definitely require investments in the Italian plant, which will reduce profitability at a time when there is a cash crunch.  Potential for growth: The compression chiller technology is being superceded by absorption chiller technology, and investments in

new products in this line will not ensure future potential.  Acceptance from all stakeholders: While being acceptable to the Italians and his boss Buis, this option will not be acceptable to the CEO, Briggs. Invest in a new plant for absorption-chiller coolers in Spain:

Profitability: This decision may lead to profitability in the long term, especially as market demand shifts towards absorption chillers. However, it requires an upfront investment, which will strain Clayton’s books. More importantly, choosing this option does not address in any way the problem that Clayton’s Italian operations are bleeding a million dollars a month. Potential for growth: This decision option has a very high potential for growth, and further market and technical research is advisable to make a stronger case for investment. Acceptance from all stakeholders: The investments equired will require stronger justification and political manoeuvring.

This option will not be acceptable to his boss Buis, who has invested politically in the Italy strategy.  Exit the European commercial air-conditioning market:  Profitability: Shutting down the Italian plant will immediately stop the heavy operating losses; however in the absence of a strong and developed alternative source of revenue it will affect the future of Clayton Industries. Potential for growth: This decision option by definition has extremely limited potential for future growth, unless alternatives are developed. Acceptance from all stakeholders: This strategy will be unacceptable to Arnell’s boss Buis, and is likely to cause major labour and legal problems in Italy for Clayton. Hold off investments and tighten efficiency in Italy (Recommended): Profitability: This directly addresses the profitability issue faced by the Italian plant, and is a good short-term measure that does not hamper any long-term

plans or call for any sudden shift in strategic direction. Potential for growth: This decision option does not directly contribute to growth potential.

However by focussing on the critical issue at hand and restoring profitability, it does bring Clayton into a stronger position from where it can plan for future growth. Options like investing in a Spanish plant call for a shift in strategic direction, and this decision gives Arnell the space for further research and analysis to support such a shift. Acceptance from all stakeholders: There will be some resistance from Italian labour (eg FILM), but Arnell can use provisions like the Cassa Ingrazione Guardagni (CIG) to implement this decision. This decision will have strong support from Arnell’s boss Buis, as well as the CEO Briggs.

To conclude, Simone Buis’ strategy of integrating all European subsidiaries, and the common policies she framed to further that goal, has created problems for individual subsidiaries. However the current business problem is that the Italian plant is making heavy operational losses as a result of those policies, and any decision should address these losses as top priority. By holding off any further investments and focus on efficiency measures in Clayton SpA (Italy) to restore profitability, Peter Arnell should aim to being Clayton SpA into the black, and use this time to study further options that can poise the company for future growth.