Wallace Case

CASE ANALYSIS 1: THE WALLACE GROUP

Introduction

The Wallace Group is a diversified company that deals in the manufacture and development of technical products and systems. The company consists of three primary operating groups, electronics, plastics, and chemicals. The electronics group is by far the largest, its size is approximately the size of the plastics and chemical groups combined. Of the $70 million in net sales, the electronics groups contributed about $35 million of that, with plastics contributing $20 million and the remaining $15 million coming from the chemical group.

Both the plastics and chemical groups were acquired for the sole purpose of diversifying the company. Mr. Wallace thought if he added these two new divisions, he would be able to bring new life to the company.

However, due in part to these acquisitions, the Wallace Group faces several problems. The first issue relates to their hiring process and how they choose who to promote. Instead of hiring qualified employees with the proper expertise, they focus more on cutting costs, therefore hiring non-qualified employees. One example of this process is, instead of creating a management development program for training and recruitment of new management, they just promote within. However, they promote technicians to management positions without the proper training, because it's cheaper to do that.

The second issue arising is their inability to have a standardize form of collecting and presenting data. One example is that both the Vice President of Marketing and the Director of Advanced Systems, collect and utilize the similar data for marketing purposes. Because both managers are collecting data for the relatively same purpose, there redundancy and also a greater workload that is unnecessary and unproductive.

The third and final issue, which is the most crucial, is the lack of vision from Mr. Wallace. The acquisitions of the plastics and chemical companies, both lacked forward looking vision, the only requirement for their acquisition was that they were profitable.

PEST

Political

* The U.S. Government is their primary customer

* Changes in government policy or funding to defense can affect sales dramatically

* Change in world environment (peace, war, etc) can affect government contracts

* Unions enforcing a no lay-off clause conflicting with increased production measures

Economic

* During a good, booming economy, the Wallace Group should expect large spending from its customers

* Company has a hard time attracting skilled employees

* U.S. spends more than any other nation in regards to defense

* Current wars may affect sales of defense related products

* State of economy and expected direction suggest increased current and future sales of autos

* Rising interest rates will make it more expensive to finance the necessary adjustments/expansion to the company through long-term debt issues

Social

* Due in part to the Department of Defense being viewed as a use for social imperialism, sales could be affected

* Impact of automobiles on environment (ie. Global warming) may impact automotive sales

Technological

* The Wallace Group needs to be on the cutting edge of technology

* Rapid technological advances can help to better manufacturing processes

* US government committed to the military with latest technology

SWOT

Strengths

* The biggest strength is the name. Wallace's name brings good feedback and high amounts of recognition with it

* Company is technologically competent

* Company still operating at a profit

* Strong foothold in government contracts

* Major supply contracts (plastics) with Chrysler, Martin, Foster, etc.

* Able to supply its own parts and raw materials

Weaknesses

* Their biggest weakness is their corporate culture

* The company lacks in its ability to turn sales into large amounts of profits (i.e. $70m in sales, but only $1m in net profit)

* Lack of clear vision and overall company strategy, dissatisfaction among employees

* Unprofitable chemicals division

* Transfer pricing issue in chemicals and plastics dept

* Poor organizational design and lack of clear job responsibilities

* Lack of sales diversification - too dependent on government contracts

Opportunities

* Diversify - offer a similar product for civilian use

* Able to produce end-use products and components with minimal alteration to existing production methods (product diversification)

* Large sales in automotive industry could increase revenue

* Can finish the new tactical display system for the Army resulting in $56 million over next 5 years

* Can decrease cost by buying materials outside of its sister companies

Threats

* Loss of government contracts could lead to financial difficulty

* If they aren't up to date with technology, they could get left behind

* Poor salary schedules could lead to skilled employees defecting to competitors

Porter's