Atchison Corporation is a case based on a large U.S.- based manufacturer of household products (Dial Corporation). They make soap, laundry detergent, household cleaning products.
In 1994, they were in a strange situation with three things happening:
Highest level of sales in the company history
Lowest after-tax profits in many decades
Retirement of long-standing president and CEO – Jerome Atchison
Products were manufactured in four regional factories located across different parts of United States, and sold by a company sales force in thousands of grocery stores.
The company has always been focused on production and volume. In fact, people that worked at Atchison clearly understood the goal that “next year’s sales will be greater than the previous year”. For many decades, the company did not do much advertising because the Atchison brand was sufficient to sell the product.
Structurally, Atchison is organized into 8 major divisions:
7 regional sales divisions and 1 central manufacturing division.
Each sales division governed by corporate policies, with little flexibility to match local competitive prices or pay sales people beyond the corporate limit.
All sales people were on straight salary with no bonus available, resulting in salary below industry average.
The accounting office collected sales and expense information for each sales division. Each sales division received a quarterly statement without commentary that reported:
Number of cases sold - Sales revenue per case – Local expenses per case.
The information provided to each sales division did not allow for comparison or benchmarking against other sales divisions in the company.
Once every quarter, the seven senior Sales Vice- Presidents met at headquarters to discuss progress.
These discussions were focused on sales as compared to budget. All knew that sales targets had to be exceeded by any means necessary.
Atchison had a reputation for being very conservative with its compensation program. All managers were paid straight salary with no contingent bonus. They might receive a modest raise every two to three years regardless of division or company performance.
The salaries for the regional sales vice presidents ranged from $150,000 to $220,000. Jerome Atchison’s salary of $250,000 was the highest in the company.
The company culture was a source of pride for the CEO. He often used phrases such as:
“We take care of our family”, “We are all part of the same team”, “Without all of us we are nothing”
Employee turnover at Atchison was very low. Employees at all levels viewed their jobs as lifetime careers. There was no formal retirement plan, and some managers were working until age 70.
The company had a long history of taking care of its employees. Including:
An emergency fund to provide financial support to employees in crisis situations
Granting educational scholarships to employee’s children
Generous medical insurance programs
Encouraging employees to give time to charity organizations
With little to no compensation plan, employees have been offered no drive to work better or harder. Instead, they simply do enough work not to get fired. Furthermore the Atchison firing policy was counter productive, because no manager could be fired, unless with a review from the top, and basically had to be on dishonesty or some other ethic reason. . These, coupled with the idea of lifetime careers no longer stand clear today, and Millman fighting spirit will likely do away with this old-style thinking.
Millman’s philosophy is very much different and it’s very confrontational. In most change situation this approach is not effective and cause lots of cultural crisis as we see in the case. But with a new format and a smooth pace it could happen in a better way, because the organization culture shaped during the years and it can’t be changed in a night and instead of long term profitability he must be kept in mind to keep current employees happy and positive.
The first thing I implement is a policy change. Broad sweeping compensation plans from top to bottom. And I give employees something to work for. Second, I set forth a policy to have those over 55 retire. Managers in there mid 70’s are only holding the company back with older ideas, that often times are highly conservative. Another policy that would have to change is the idea that only the president and CEO can fire managers.
The second thing would be to gain a firmer grasp on the numbers, through outsourcing of some accounting functions. With only one central accounting office working for all divisions, the numbers obtained do not necessarily show what is happening in a particular division. The idea that these numbers are only obtained once a quarter is also not helpful.
With only one report a quarter, these divisions are not able to make the appropriate changes that are needed in the market place at the time. I would have each division outsource their accounting, therefore cutting costs, allowing better reporting of the trends that are happening in each division, and allowing the central accounting office to coordinate only company wide numbers. The same would be true for manufacturing numbers. Outsource each plants accounting, and have better numbers obtained.
Short-term consequences: Increase profitability, pushing forward Millan’s plan,
Long-term consequences: Loosing some of the valuable employee, increase negative ness atmosphere in the corporation, loosing core competency