The phone rang breaking the quiet of the office and her train of thought.
‘Amanda, I’ve got the President on the line for you.’
She knew that Scott never called for a chat, he just wasn’t that kind of guy. It was always either some outrageous ask or one of his infamous takedowns over some aspect of performance.
‘Hi, Scott, how are you today?’
‘Never mind how am I, Amanda. I’ve got your P & L for last month in front of me and it ain’t pretty reading!’
‘Yes, sales were up but the exchange losses hit us pretty bad, so…’
‘Look, I haven’t got time for excuses now! We’ve got a board meeting in Geneva on the 15th and I want you there with a turnaround plan for the remainder of the year. And, listen, it had better be good!’
‘The 15th? That doesn’t leave much…’ Click! The line went dead.
Why wasn’t she surprised?
She sat back and considered the situation. The UK operation was an integral part of the wider European business (itself an arm of the US parent that, in turn, was ultimately owned by a vast corporation). Of the range of industrial products they manufactured in the UK, they exported 90% to the rest of the group worldwide. Of the products they sold in the UK, a similar percentage were imported from their other manufacturing plants across Europe to make up the range required.
She’d been with the company for ten years, first as Marketing Director and the last 3 as MD. It had been the strategy she had formulated in her first year that had set the UK on a steep growth curve in sales & profits (and put her career on its ascendency). One of the issues with their complex supply chains was exchange rate volatility. The recent fall in the Pound had hit the UK operation hard. However, the rest of the group, who purchased UK manufactured products, were correspondingly enjoying increased profitability as a result. Given the group’s widespread manufacturing operations, there would always be winners and losers as currencies rose and fell.
There was another inescapable factor, though; the vast majority of the products they produced and sold were totally undifferentiated commodities, designed and made to harmonised international standards. The success that Amanda had created in the UK flowed from a strategy focussed on differentiating everything other than their products. The support they provided to their distributors, the quality of their entire team and the delivery service they provided were now consistently rated the very best in the industry.
Having spent her entire career up to this point in multinational corporations where currency fluctuations were the norm, Amanda had learnt that you didn’t win success by chasing the effect of every little change in currency cross rates.
‘Here we go again.’ She thought.
The problem was that Scott, despite being a long-term executive with the organisation, had only been in Europe for a year, assumed everything worked as it did in the US (no currency movements there) and seemed intent on fixing everything that wasn’t broken. Unlike his predecessor, Louis, a European who had been a strategist through and through (and with whom Amanda had worked well), Scott would be constantly into the detail, leaning on you to change in line with his suggestions but making clear the effect of any change was your responsibility.
Amanda picked up the phone,
‘Suzie, can you check who’s in and when, then set up the earliest meeting with the team? OK, thanks.’
She had only a week to review the outlook for the remaining six months of the year. Amanda knew that there were no rabbits to be pulled out of hats and she wasn’t about to start brow beating a very good team. Over the next week, they worked together to ensure that they reviewed every aspect of the business. Taken overall, the long-term trends were favourable and they were able to make some minor overhead savings in the current year. But these savings were not enough to offset the current exchange losses.
Apart from the exchange rate problem there was another existential issue across the industry.
Over the time she had been with the company, the selling price of the main products had fallen consistently. With common (and limited) suppliers of the components required for manufacture, almost the only way you could drive the cost down was by finding ways to increase the speed of the automated production lines. The result of this improvement was that every hour you produced more product at a theoretically lower price. However, this potential cost reduction was only ultimately worthwhile if the additional production could be sold without a price reduction. The market wasn’t increasing fast enough to absorb the increased output, so the vicious cycle went on – you simply chased your tail.
Amanda knew that ultimately an industry-wide shakeout of competition was the only answer.
She kept a graph in her office that plotted the average price per unit sold of major items against market share & volume. When she dropped the price, their volume and market share rose but when she raised price, volumes dropped and market share fell. It was a perfect negative correlation. She was getting beaten up on a regular basis for not raising prices. But when she did, unit volumes dropped and the factories became starved of the additional volume they needed to keep lines running at ever faster speeds.
The day of the board meeting dawned and saw Amanda having a late breakfast and seeing the kids off to school herself. Tom could have done this, as he usually did, but part of her personal stress reduction routine was to ensure she never went into the office on the morning of a trip. Better a late start and a leisurely drive to the airport than risk getting caught up in something and the stress level going through the roof. Suzie knew to field enquiries with a bland ‘She’s travelling.’
She reviewed her presentation again during the flight. She couldn’t be sure of the outcome, but she knew exactly what to expect in terms of the meeting, the personalities involved and the inevitable haranguing she could expect from Scott. The man was a career opportunist and a bully.
Landing on time, a short taxi ride took Amanda to their centrally situated headquarters.
Ushered up to the executive floor, Amanda received a warm welcome from Scot’s secretary Sylvie who she had known well for years. After a brief chat, Sylvie brought her a coffee, explained things were running a little late and said she would let her know when they were ready for her. Amanda, sank back into one of the leather armchairs around the coffee table and took in the panoramic views of the Lake and across to Mont Blanc. She and Tom had enjoyed walking holidays in Switzerland when they were younger. Closing her eyes, she breathed deeply and memories of those early, untroubled days came flooding back.
An hour went by before she was ushered into the vast conference room, where the European board and a number of the senior management team were assembled. She knew most of this long-standing group well but could only count on a couple as being on-side. She was placed at the far end of the table, in front of a large TV screen mounted on the wall.
‘Hi’ greeted Scott, ‘Get your laptop plugged into the system and let’s get started. It’s been a long day and we are all looking forward to some good news.’
She was only a few minutes into the presentation of her revised year-end projection, running through some basic assumptions, when Scott interrupted…
‘Look, can we cut all this preamble crap and get straight down to how you’re going to get back to your original budget numbers!’
Sarah sighed inwardly & skipped quickly to her revised profit projections but as soon as Scott spied that there was still a shortfall on the bottom line, he erupted again…
‘Why the hell can’t you just put up your goddam prices?’ he growled, ’It’s not like its rocket science!’
‘If you’ll allow me a moment to cover some fundamentals, we’ll all have a better perspective on the situation and what is and isn’t possible.’
Amanda switched to the graph, that plotted volume against price over the past 15 years.
‘So’, she concluded a few minutes later, ‘as we’ve seen… we can have higher prices but lower volumes for the factories or we can have lower pricing with increased market share and higher volume (which will permit reduced costs). Given the dynamics of the market nothing else is possible with non-differentiated commodity products.’ She also managed to cover the latest research showing how well respected the company was in the UK, before Scott erupted saying that other countries were making more effort and running better marketing programs (something Amanda knew to be complete fabrication). Finally, leaping to his feet he concluded…
‘Look, if ya can’t improve the pricing, maybe I should just close the whole goddam UK operation!’
Amanda nodded slowly & turning to Karl, who was VP Manufacturing, the most influential of Gregg’s team and someone she suspected was the real power behind the throne, asked…
‘Carl, perhaps you could let the board know if we can afford to lose the entire production volume from the second largest market we have in Europe?’
“Of course not!” he growled back, red in the face.
She turned back to Scott…
‘I’ve explained the full situation, everything that impacts upon the UK financial position, perhaps you could let me know what it is that you wish to do now?’
There was no reply from Scott…he was silent, his face going darker shades of red while he leafed through his papers.
‘Item 10, proposed extension to the Lyon factory.’
Amanda knew that she might have won that battle but she was a long way from winning the war.