Case Studies

C A S E 1
United Products, Inc.
Jeffrey C. Shuman
warrant. As of the mid-1960s, his holdings consisted of a
Having just returned from lunch, George Brown,
chain of four related sales distribution companies covering
president of United Products, Inc., was sitting in
the geographic area from Chicago eastward.
his office thinking about his upcoming winter
In 1967, feeling it was time to step aside and turn
vacation—in a few days, he and his family would be
leaving from Boston to spend three weeks skiing over active control of the business to his sons, the elder
on Europe’s finest slopes. His daydreaming was Mr. Brown recapitalized and restructured his companies,
interrupted by a telephone call from Hank Stevens, merging some and disposing of others. When the restruc-
UPI’s general manager. Mr. Stevens wanted to turing process was completed, he had set up two major
know if their two o’clock meeting was still on. The companies. United Products, Inc., was to be run by his
meeting had been scheduled to review actions UPI youngest son, George Brown, with its headquarters in
could take in light of the company’s sluggish sales Massachusetts, while his other son, Richard Brown, was
and the currently depressed national economy. In to operate United Products Southeast, Inc., headquar-
addition, Brown and Stevens were to go over the tered in Florida.
financial results for the company’s recently Although the Brown brothers occasionally worked to-
completed fiscal year—they had just been received gether and were on each other’s board of directors, the
from UPI’s auditors. Although it had not been a two companies operated on their own. As George Brown
bad year, results were not as good as expected, and explained, “Since we are brothers, we often get together
this, in conjunction with the economic situation, and discuss business, but the two are separate companies
had prompted Mr. Brown to reappraise the plans he and each files its own tax return.”
had for the company for the upcoming year. During 1972, United Products moved into new facili-
ties in Woburn, Massachusetts. From this location it was
thought that the company would be able to serve its entire
New England market area effectively. “Our abilities and
Company History our desires to expand and improve our overall operation
United Products, Inc., established in 1941, was engaged in will be enhanced in the new specially designed structure
the sales and service of basic supply items for shipping and containing our offices, repair facilities, and warehouse,” is
receiving, production and packaging, research and develop- how George Brown viewed the role of the new facilities.
ment, and office and warehouse departments. Mr. Brown’s Concurrent with the move, the company segmented the
father, the founder of the company, recognized the tax more than 3,500 different items it carried into eight major
advantages in establishing separate businesses rather than product categories:
trying to consolidate all of his operations in one large or- 1. Stapling machines. Manual and powered wire stitchers,
ganization. Accordingly, over the years, the elder Mr. Brown carton stitchers, nailers, hammers, and tackers
had created new companies and either closed down or sold 2. Staples. All sizes and types (steel, bronze, monel,
off older companies as business conditions seemed to stainless steel, aluminum, brass, etc.) to fit almost all
makes of equipment
3. Stenciling equipment and supplies. Featuring Marsh
Jeffrey C. Shuman, Ph.D., Associate Professor of Management, Bentley hand and electric machines, stencil brushes, boards,
College, Waltham, MA. Reprinted with permission. and inks

419
420 CASE STUDIES

4. Gummed tape machines. Hand and electric, featuring Competition

Marsh, Derby, and Counterboy equipment
5. Industrial tapes. Specializing in strapping, masking, George Brown indicated that UPI does not have clearly
cellophane, electrical, cloth, nylon, and waterproof defined rivals against whom it competes head on with re-
tapes made by 3M, Mystik, Behr Manning, and Dymo spect to all of its 3,500-plus items:
6. Gluing machines. Hand and electric It is hard to get figures on competition, since we
7. Work gloves. All sizes and types (cotton, leather, neo- compete with no one company directly. Different
prene, nylon, rubber, asbestos, and so on) distributors carry lines that compete with various of
8. Marking and labeling equipment our product lines, but there is no one company that
In a flyer mailed to United Products’ 6,000 accounts competes against us across our full range of
announcing the move to its new facilities, the company products.
talked about its growth in this fashion: On a regular basis, Mr. Brown receives Dun &
Here we grow again—thanks to you—our many Bradstreet’s Business Information Reports on specific
long-time valued customers.... firms with which he competes. Mr. Brown feels that since
Time and circumstances have decreed another the rival firms are, like his own firm, privately held, the fi-
United Products transPLANT—this time, to an unpol- nancial figures reported are easily manipulated and there-
luted garden-type industrial area, ideally located for an fore are not a sound basis on which to devise strategies
ever-increasing list of our customers. Now, in the new and plans. Exhibit 2 contains comparative financial figures
28,000-square-foot plant with enlarged offices and for two competing companies, and Exhibit 3 contains
warehouse, we at UNITED PRODUCTS reach the D&B’s description of their operations, along with D&B’s
peak of efficiency in offering our customers the com- comments about two other firms operating in UPI’s New
bined benefits of maximum inventories, accelerated England market area.
deliveries, and better repair services.
By 1974, the company had grown to a point where Management Philosophy
sales were $3.5 million (double that of four years earlier) When Mr. Brown took over UPI in 1967 at the age of 24,
and 34 people were employed. Results for 1973 compared he set a personal goal of becoming financially secure and
to 1972 showed a sales increase of 22 percent and a 40 per- developing a highly profitable business. With the rapid
cent gain in profits. Exhibit 1 contains selected financial growth of the company, he soon realized his goal of finan-
figures for 1971, 1972, and 1973, in addition to the fiscal cial independence and in so doing began to lose interest in
1973 balance sheet. the company. “I became a rich person at age 28 and had

EXHIBIT 1 Selected Financial Information, United Products, Inc.

11/30/71 11/30/72 11/30/73

Current assets $ 862,783 $ 689,024 $ 937,793

Other assets 204,566 774,571 750,646
Current liabilities 381,465 223,004 342,939
Net worth 685,884 750,446 873,954
Sales n.a.* 2,830,000 3,450,000
Statement of financial condition, November 30, 1973:
Cash on hand $ 46,961 Accounts payable $ 321,885
Accounts receivable 535,714 Notes payable 20,993
Merchandise in inventory 352,136
Prepaid insurance, interest, taxes 2,980
Current assets $ 937,791 Current liabilities $ 342,878
Fixtures and equipment $ 42,891 Retained earnings $ 471,655
Motor vehicles 49,037 Capital stock 519,800
Land and buildings 658,768 Surplus 354,154
Total assets $ 1,688,487 Total liabilities $ 1,688,487

*n.a.: Not available.

 CASE 1 • UNITED PRODUCTS, INC. 421

EXHIBIT 2 Financial Information on Rival Firms

East Coast Supply Co., Inc.—Sales $1 Million

Fiscal December 31, Fiscal December 31, Fiscal December 31,

1971 1972 1973

Current assets $ 88,555 $ 132,354 $ 163,953

Other assets 16,082 18,045 27,422
Current liabilities 41,472 47,606 74,582
Net worth 63,165 102,793 116,793
Statement of financial condition, December 31, 1973:
Cash $ 42,948 Accounts payable $ 39,195
Accounts receivable 86,123 Notes payable 27,588
Merchandise in inventory 34,882 Taxes 7,799
Current assets $ 163,953 Current liabilities $ 74,582
Fixtures and equipment $ 15,211 Capital stock $ 10,000
Deposits 12,211 Retained earnings 106,793
Total assets $ 191,375 Total liabilities and 191,375
net worth

Atlantic Paper Products, Inc.—Sales $6 Million

June 30, 1970 June 30, 1971 June 30, 1972

Current assets $ 884,746 $1,243,259 $1,484,450

Other assets 93,755 101,974 107,001
Current liabilities 574,855 520,572 1,120,036
Net worth 403,646 439,677 471,415
Long-term debt 0 384,984

few friends with equal wealth who were my age. The busi- I like to feel comfortable, and if we grow too
ness no longer presented a challenge and I was unhappy quickly, it could get out of hand. I realize that the busi-
with the way things were going.” ness won’t grow to its potential, but why should I put
After taking a 10-month “mental vacation” from the more into it?... The company could grow, but why
business, George Brown felt he was ready to return to grow? Why is progress good? You have to pay for
work. He had concluded that one way of proving himself everything in life, and I’m not willing to work harder....
to himself and satisfying his ego would be to make the Another thing... I am a scrupulously honest
company as profitable as possible. However, according to businessman, and it is very hard to grow large if
Mr. Brown, “The company can only grow at approximately you’re honest. There are many deals that I could get
20 percent per year, since this is the amount of energy I am into that would make UPI a lot of money, but I’m too
willing to commit to the business.” moral a person to get involved....
In 1974, at age 31, Mr. Brown described his philo- To me, happiness is being satisfied with what you
sophical outlook as “very conservative” and surmised that have. I’ve got my wife, children, and health. Why risk
he ran UPI in much the same way as his 65-year-old fa- these for something I don’t need? I don’t have the
ther would have. In describing his managerial philosophy desire to make money, because I didn’t come from a
and some of the operating policies he had established, he poor family; I’m not hungry.
said: I have never liked the feeling of owing anything
I am very concerned about making UPI a nice to anyone. If you can’t afford to buy something, then
place to work. I have to enjoy what I’m doing and don’t. I don’t like to borrow any money and I don’t
have fun at it at the same time. I cannot make any like the company to borrow any. All of our bills are
more money, since I’m putting away as much paid within 15 days. I suppose I’ve constrained the
money as I can. The government won’t allow me to business as a result of this feeling, but it’s my busi-
make more money, since I already take the maxi- ness. The company can only afford to pay for a 20
mum amount. percent growth rate, so that’s all we’ll grow.
422 CASE STUDIES

EXHIBIT 3 Descriptions of Major Competitors

East Coast Supply Co., Inc.
Manufacturers and distributes pressure-sensitive tapes to industrial users throughout
New England area on 1/10 net 30-day terms. Thirty-four employed including the officers,
33 here. Location: Rents 15,000 square feet on first floor of two-story building in good
repair. Premises are orderly. Nonseasonal business. Branches are located at 80 Olife
Street, New Haven, Connecticut, and 86 Weybosset Street, Providence, Rhode Island.
Atlantic Paper Products, Inc.
Wholesales paper products, pressure-sensitive tapes, paper specialties, twines, and other
merchandise of this type. Sales to industrial accounts and commercial users on 1/10 net
30-day terms. There are about 1,000 accounts in eastern Massachusetts, and sales are
fairly steady throughout the year. Employs 60, including officers. Location: Rents 130,000
square feet of floor space in a six-story brick, mill-type building in a commercial area on
a principal street. Premises orderly.
The Johnson Sales Co.
Wholesales shipping room supplies, including staplings and packing devices, marking and
stencil equipment. Sells to industrial and commercial accounts throughout the New
England area. Seasons are steady. Terms are 1/10 net 30 days. Number of accounts not
learned; 15 are employed including the owner. Location: Rents the first floor of a two-
story yellow brick building in good condition. Housekeeping is good.
Big City Staple Corp.

Wholesales industrial staples, with sales to 2,000 industrial and commercial firms, on 1/10
net 30-day terms. Territory mainly New Jersey. Employs ten including the officers.
Seasons steady and competition active. Location: Rents 5,000 square feet in one-story
cinder block and brick structure in good condition; premises in neat order. Located on
well-traveled street in a commercial area.

Organizational Structure year. Mr. Brown commented on his attitude toward his
employees:
Upon returning to the company from his “mental vaca-
tion” in 1971, George Brown realigned UPI’s organiza- The men might complain about the amount of re-
tional structure as shown in Exhibit 4. (The company does sponsibility placed on them, but I think it’s good for
not have a formal organizational chart; this one is drawn them. It helps them develop to their potential. I’m a
from the case researcher’s notes.) With respect to the way nice guy who is interested in all of my people. I feel a
his company was organized, he remarked: strong social obligation to my employees and have
We have to have it on a functional basis now. We are developed very close relationships with all of them.
also trying something new for us by moving to the My door is always open to them no matter what the
general manager concept. In the past when I was problem may be.
away, there was no one with complete authority; now I make it a policy never to yell at anyone in pub-
my general manager is in charge in my absence. lic; it’s not good for morale. Maybe it’s part of my
conservative philosophy, but I want everyone to call
In discussing the new structuring of the organization, me Mr. Brown, not George. I think it’s good for peo-
Mr. Brown was quick to point out that the company had not ple to have a Mr. Brown. Although I want to run a
established formalized job descriptions. “Job descriptions nice friendly business, I have learned that it’s hard to
are not worth anything. My people wear too many hats, and be real friends with an employee. You can only go so
besides, we’re too small to put it in writing.” At present the far. Employers and employees cannot mix socially; it
company employs 34 people, including Mr. Brown. just doesn’t work out over the long run.
Mr. Brown is quick to point out that he has never had This is not your normal business. I am very ap-
a personnel problem. “All my people enjoy working here.” proachable; I don’t demand much and I allow an
He believes that “nobody should work for nothing” and easy, open dialogue with my employees. Seldom do I
has therefore established a personal goal of seeing to it take any punitive action. I’m just not a hard-driving
that no one employed by UPI makes less than $10,000 per tough guy.... I’m an easygoing guy.
 CASE 1 • UNITED PRODUCTS, INC. 423

EXHIBIT 4 UPI Organization Chart, December 1974

President
Mr. George Brown

General Manager
Mr. Hank Stevens

Sales Manager Manager Purchasing Manager Order Manager Service

Mr. Hank Stevens and Shipping Processing Department
Mr. Hanes Mr. Willis Mr. Kane

10 Salespeople Assistant Manager

It would take much of the enjoyment out of the the profitability of the company. I look at the sales-
business for me to come in here and run this place people’s performance on a weekly and monthly basis
like a machine.1 and use this information in the development of the
I find it hard to motivate the company’s sales- plans. Since we have a very informal planning process,
people. Since we have so much trouble finding good, we only forecast out one year at most. The company’s
capable people, I’m not likely to fire any that I have. plans are reevaluated each month and, if necessary,
This situation makes it hard for me to put pressure new plans are set. Only on rare occasions have we
on them to produce. ever planned beyond one year. However, I think the
The bonus system, if you want to call it that, is, I current economic and political situation may force us
guess, what you’d call very arbitrary. I have not set up to develop plans that cover a two-year period.
specific sales quotas, or targeted goals for my inside I am familiar with commonly accepted theory
people, so, as a result, I base my bonus decisions on about planning systems, but I do not feel it is neces-
my assessment of how well I feel an employee per- sary for UPI to institute, in a formal manner, any of
formed during the past year. those I’ve read about. We perform many of the ac-
Recently, I’ve given some thought to selling the tivities advocated in the planning models, but we do
company. I could probably get around $3–$4 million them in a relaxed, casual fashion. For example, I am
for it. If I did that, I’m not sure what I would do with a member of many organizations connected with
my time. Besides my family and UPI, there is not my business and receive industry newsletters on a
much that I am interested in. A couple of years ago, regular basis. In addition, I receive input from
when I took my extended vacation, I got bored and friends and business associates both inside and out-
couldn’t wait to get back to the company. side my line of business. Since we do not have a for-
mal process, planning tends to be a continuous
process at UPI.
UPI’s Planning Process
George Brown claims to be a firm believer in planning. “I Although goals are not formally developed and writ-
find myself spending more and more time planning for the ten down, Mr. Brown said he established targets for the
company. Currently, I’m averaging about 50 percent of my company to achieve in the areas of sales, profits, and orga-
time and I see this increasing.” As he described it, the plan- nizational climate:
ning process at United Products is really a very loose system:
1. Increase sales volume by 20 percent per year.
We have no set way as to how we do the planning. 2. Increase gross profit margin 0.5 to 1 percent per year.
Basically, the process is directed at ways of increasing 3. Make UPI a friendly place to work.

1When
Mr. Brown feels that the company has been able to grow
the case researcher arrived at the plant one afternoon, he
observed Mr. Brown running around the office deeply involved in a at about 20 percent a year in the past and should be able to
water fight with one of his office girls. By the way, he lost. realize that level in the future. In addition, he believes that
424 CASE STUDIES

sales growth is a necessary evil: “Those companies that don’t sometimes finds himself with little to do and often works
grow are swallowed up by the competition, and besides, given only five hours per day. As he described it:
the amount of energy I’m willing to exert, I think 20 percent
Hank’s discretionary power has increased steadily
is a reasonable level of growth.”
since he arrived here—partly as a result of the extent
In the area of profits, the company actually sets no
of responsibility I’ve placed on him and partly due to
specific targeted figures other than simply an increase in
his aggressiveness. As it now stands, he makes almost
the gross profit margin (as already stated). Mr. Brown
all of the daily operating decisions for the company,
observed:
leaving me with only the top-management decisions.
We do not set a goal because we would not have a Let’s be realistic... there just aren’t that many top-
way of measuring it. I have no way of knowing how management decisions that have to be made here in
much money I am making until the end of the year, the course of a day. A lot of the time, I walk around
without spending considerable time and effort. the plant checking on what other people are doing
and, I guess, acting as a morale booster.
When asked about UPI’s strengths and weaknesses,
Mr. Brown indicated that the company had four areas of When asked about the management capabilities of
strength: Hank Stevens, Mr. Brown responded by saying, “Hank
probably feels that he is working at a very fast pace, but
1. The number of different products carried.
when you evaluate the effectiveness of his actions, he is
2. The quality of its employees, particularly
actually moving forward at what I would consider to be a
salespeople.
very slow pace. However, everything else considered,
3. The absence of any debt.
Hank is the best of what is around. I guess if I could find a
4. Purchasing capabilities.
really good sales manager, I would add him to the com-
The major weakness he viewed was an inability to get pany and relieve Hank of that area of responsibility.”
and train new personnel—primarily in the area of sales.

Hank Stevens
Sales Force Hank Stevens, 32, joined UPI at the time of the reorganiza-
tion in 1970 after having graduated from a local university
UPI’s salespeople are not assigned a sales quota for the
with a B.S. in economics. As general manager, Mr. Stevens’s
year, but rather are evaluated based on Mr. Brown’s as-
responsibilities include planning, purchasing, and sales man-
sessment of the particular salesperson’s territory and ini-
agement, as well as involvement in other decisions that affect
tiative. He feels his salespeople make more than those of
UPI’s policies. Mr. Stevens feels that he has been fortunate in
his competitors. Several of UPI’s 10 salespeople have
that “ever since I came to UPI, I’ve reported to the president
earned as much as $40,000 in a single year. All salespeople
and in essence have had everyone else reporting to me.”
are compensated on a straight, sliding-scale, commission
When asked about the goals of UPI, Mr. Stevens
basis calculated as follows:
responded, “As I see it, we have goals in three major areas:
8 percent for the first $180,000 in sales profitability, sales level, and personal relationships.” In dis-
7 percent for the next $60,000 cussing his own personal goals, Hank explained that he
6 percent for the next $60,000 hoped the organization would grow and that, as a result,
5 percent for all sales over $300,000 he would be able to grow along with it. Since Mr. Stevens
works so closely with Mr. Brown, he has given consider-
Mr. Brown is pleased with the sales success of his able thought to his boss’s business philosophy:
company and feels that United Products’ greatest
strength is its ability to “sell anything to anybody.” Still, I feel that George’s business philosophy is unique. I
he perceives UPI’s main problem as finding good sales- guess the best way to describe it is to say that above
people. “There just aren’t good salespeople around and all he is a businessman. Also, he has very high moral
this is a problem because salespeople are the lifeblood of values and as a result of that he is extremely honest
our business.” and would never cheat anybody. Actually, the com-
pany would probably look better financially if it was
run by someone who didn’t operate with the same
UPI’s Management Team values as George.
At the time of the company’s reorganization, Hank Stevens When asked about the sales force at UPI, Mr. Stevens
was brought in as general manager and assistant to the pres- commented, “When a new salesman starts with the com-
ident. Over the past several years, Mr. Stevens’s areas of pany, he does so with full salary. After a period of about two
responsibility have grown to an extent where they now com- years, we change him over to a commission basis.” As has
prise approximately 80 percent of the activities that were always been the case, UPI concentrated its sales efforts on
formerly done by Mr. Brown. As a result, George Brown large customers. Mr. Stevens noted that “on the average the
 CASE 1 • UNITED PRODUCTS, INC. 425

company processes approximately 105 orders per day, with more product lines, purchasing more effectively, and under-
an average dollar value per order of roughly $132. It’s not taking more aggressive sales promotion.”
that we won’t write small orders, we just don’t solicit busi- Mr. Brown believes that UPI should try to maximize the
ness from small accounts. It just makes more sense to con- profit on every item sold. To do this the company tries to set
centrate on the larger accounts.” its prices at a level that is approximately 10 percent above the
competition. Mr. Brown explained his pricing philosophy:
Jim Hanes I don’t understand why people are afraid to raise
Jim Hanes, 24, has been with UPI for over six years and dur- prices. If you increase the price, you will pick up
ing that time has worked his way up from assistant service more business and make more money. That allows
manager to his current position as the number three man in you to keep the volume low and still make more
the company—manager of purchasing and shipping. Jim is re- money. In addition, although the customer may pay
sponsible for the front office, repair work, and the warehouse. more, he gets more. The higher price allows me to
He feels that his reporting responsibility is approximately 60 provide top-notch service to all my customers.
percent to Mr. Stevens and 40 percent to Mr. Brown. “Since I In his view, UPI is an innovative company. “Until very
have responsibility for all merchandise entering and leaving recently we were always innovating with new products and
the company, I get involved with both Hank and George, and new applications. Now I think it’s again time that we
therefore I guess I report to both of them.” started to look for additional new and exciting products.”
In talking about where he would go from his present Brown was aware that UPI’s strategic emphasis on
position, he explained: service, together with his business philosophy, had resulted
in UPI’s organization being larger than it had to be, given
I guess the next step is for me to become a salesman
the level of business. Mr. Brown explained the reasoning
so that I can broaden my background and move up
behind this condition. “I know the organization is bigger
in the company. However I am a little worried; I
than it has to be. We could probably handle three times the
don’t think the salespeople in our company are given
present volume of business with our present staff and
the right sales training. As the system works now, a
facility. I think it’s because of my conservative attitude:
new salesman is assigned to work with an experi-
I’ve always wanted the organization to stay a step ahead of
enced salesperson for about six weeks—after which
what is really needed. I feel comfortable with a built-in
time he is given his own territory. Perhaps if our sales
backup system and therefore I am willing to pay for it.”
manager had had more experience as a salesman, he
In December 1974, Mr. Brown talked optimistically
would handle the training differently.
about the future. He felt that sales should reach the $6–$7
In commenting on his understanding of Mr. Brown’s phi- million range by 1978. “Looked at in another way, we
losophy, Jim summed up his position: “George is a very open should be able to grow at 20–25 percent per year without
person. I think he is too honest for a businessman. He cer- any particular effort.” He went on to say:
tainly gives his people responsibility. He gives you the ball I want to grow and therefore I am making a con-
and lets you run with it. I don’t think enough planning is done certed effort. I am constantly looking for possible
at UPI. At most, it appears that we look ahead one year, and merger avenues or expansion possibilities. I do not
even then what plans are developed are kept very flexible.” want to expand geographically. I would rather con-
trol that market area we are now in.
UPI’s Corporate Strategy I recently sent a letter to all competitors in New
England offering to buy them out. Believe it or not,
When asked about UPI’s current strategy, Mr. Brown
no one responded.
responded that “the company is presently a distributor in
I do not see any problems in the future.The history
the industrial packaging equipment, shipping supplies, and
has been good; therefore, why won’t it continue to be?
heavy-duty stapling equipment business. In the past when
Growth is easy. All I have to do is pick up a new
we’ve wanted to grow, we have either added new lines of
line and I’ve automatically increased sales and prof-
merchandise or added more salespeople, or both. For
its. Basically we are distributors, and we operate as
example, this past year I got the idea to create what I call a
middlemen between the manufacturers and users. In
contract sales department. It is a simple concept. I took
light of what has been happening in the market, I
one man, put him in an office with a telephone and a list-
feel that supply and demand will continue to be a
ing of the Fortune top 1,000 companies, and told him to
problem. Therefore, I am giving serious thought to
call and get new business. You would be surprised at how
integrating vertically and becoming a manufacturer.
easy it was to pick up new accounts.”
This will guarantee our supply.2
Mr. Stevens looks at UPI as being in the distribution and
shipping of packaging supplies business. “In order for UPI to
reach the goals that have been set, we have to sell more prod- 2Referto Exhibit 5, which contains minutes of a United Products sales
ucts. That is, we can grow by adding new salespeople, adding meeting held at the end of 1973.
426 CASE STUDIES

EXHIBIT 5 Minutes of UPI’s Sales Meeting, December 5, 1973

Mr. Brown presided at the meeting. His opening remarks highlighted the extraordinary times our country and our company are going
through as far as the general economy and the energy crisis are concerned, and the extraordinary effects of these unusual crises on
people and businesses, including our company and our sources of supply.
He thanked all present for the many thoughtful, considered, and excellent suggestions that they had offered in writing as to how
the salespeople and their company might best handle the gasoline crisis without incurring an undue loss of sales and profits, and still
maintain the high standards of service to which UNITED PRODUCTS’ thousands of satisfied customers are accustomed.
The whole situation, according to Mr. Brown, boils down to a question of supply and prices. Mr. Brown reported that on his recent
trip to the Orient, there were very few companies that wanted to sell their merchandise to us—rather, THEY WANTED TO BUY
FROM US MANY OF THE ITEMS WE NORMALLY BUY FROM FOREIGN COMPANIES, i.e., carton-closing staples, tape,
gloves, et cetera... and at inflated prices!!! The Tokyo, Japan, market is so great that they are using up everything they can produce—
and the steel companies would rather make flat steel than the steel rods that are used for making staples. A very serious problem
exists, as a result, in the carton-closing staple field not only in Japan, but also in Europe and America.
Mr. Brown advised that every year the company’s costs of operating increase just as each individual’s cost of living goes up and up
yearly. Additional personnel, increased group and auto insurance premiums, increased Social Security payments, new office equipment
and supplies, new catalogues, “Beeper system” for more salespeople—all of these costs accumulate and result in large expenditures of
money. Manufacturers cover their increased operating costs by pricing their products higher—but to date, UNITED PRODUCTS has
never put into their prices the increased costs resulting from increased operating expenses. Last year, the 3 percent increase that the
company needed then was put into effect by many of you. HOWEVER, in order for the company to realize that additional profit, this
3 percent price increase had to be put into effect ACROSS THE BOARD... all customers... all items!

That Did Not Happen!!!

Mr. Brown advised that UNITED PRODUCTS got LAMBASTED when all of the sources of supply started to increase their prices.
When SPOTNAILS, for example, went up 10 percent, the salespeople only increased their prices 7 percent. We did not get the 3
percent price increase above the manufacturers’ price increase—and we needed it then and need it even more NOW.
Eliminating the possibility of cutting commissions, there are three possible solutions for the problem and how to get this much
needed and ABSOLUTELY IMPERATIVE additional 3 percent PRICE INCREASE ACROSS THE BOARD to cover the
constantly growing operating costs for running a successful, progressive-minded and growing business whose high standards
of service and performance are highly regarded by customers and sources of supply alike, namely:

a. A 3 percent increase on all items to all customers across the board

b. A surcharge on all invoices or decrease in discounts allowed off LIST
c. A GCI charge (government cost increase) on all invoices
Considerable discussion regarding these three possibilities resulted in the following conclusions concerning the best method for
obtaining this special 3 percent ACROSS THE BOARD PRICE INCREASE, as follows:

a. A new PRICE BOOK should be issued with all new prices to reflect not only the manufacturers’ new increased prices, but in addition the
3 percent UNITED PRODUCTS PRICE INCREASE. All of the salespeople agreed that it would be easier to effect the additional 3 percent
price increase if the 3 percent was “built in” on their price book sheets.
b. This new PRICE BOOK will be set up in such a way that prices will be stipulated according to quantity of item purchased . . . with no variances
allowed. WITH NO EXCEPTIONS, the price of any item will depend on the quantity a customer buys.
c. Some items will continue to be handled on a discount basis—but lower discounts in order to ascertain that UNITED PRODUCTS is getting its
3 percent price increase.
d. Until these new PRICE BOOKS are issued, all salespeople were instructed to proceed IMMEDIATELY to effect these 3 percent price increases.

Ten New Accounts Contest

Seven of our ten salespeople won a calculator as a result of opening up 10 new accounts each... a total of 70 NEW ACCOUNTS for
our company!!! However, both Mr. Brown and Mr. Stevens confessed that the dollar volume amount stipulated in the contest had
been set ridiculously low, as a “feeler” to determine the success and effectiveness of such a contest. All the salespeople voiced their
approval of all of the contests offered to them—and agreed that they had enjoyed many excellent opportunities of increasing their
personal exchequers.

New Customer Letters

Mr. Brown again reminded all present that we have an excellent printed letter, which is available for sending to every new
customer—and urged all to take advantage of this service by the office personnel by clearly indicating on their sales and order
slips “NEW CUSTOMER.” The procedure is but another step towards our goal of becoming more and more professional in our
approach with our customers.
 CASE 1 • UNITED PRODUCTS, INC. 427

EXHIBIT 5 Continued
New Catalogues
Mr. Brown advised that by the first of the new year, hopefully, all our hard-cover catalogues with their new divider breakdowns will be
ready for hand-delivering to large accounts. These catalogues cost the company over $5 and should only be distributed by hand to
those customers who can and will make intelligent and effective use of them.

Excessive Issuance of Credits

As a result of a detailed study made by Mr. Brown of the nature and reasons for the ever-increasing number of credits being issued, he
instructed all of the salespeople to follow these procedures when requesting the issuing of CREDITS:

a. Issue the CREDIT at the right time.

b. Do not sell an item where it is not needed.
c. NEVER PUT “NO COMMENT” for the reason why merchandise is being returned. EVERY CREDIT MUST HAVE A REASON FOR ITS
ISSUANCE.

The ever-increasing number of CREDITS being issued is extremely costly to the company: (1) new merchandise comes back
90-plus days after it has been billed, and frequently, if not always, is returned by the customer FREIGHT COLLECT: (2) CREDIT
9-part forms, postage for mailing, and extra work for both the Bookkeeping and Billing and Order Processing Departments mean
higher expenses for the Company. More intelligent, considered and selective selling, plus greater care on the part of the Order
Processing personnel, according to Mr. Brown, could easily eliminate a large percentage of these CREDITS.

Actually, I don’t want to do the manufacturing. I to him by all present. The balance of the meeting was
think it would be better if I bought the manufactur- then spent in a lengthy, detailed discussion, led by
ing equipment and then had someone else use it to Mr. George Brown, of the general, overall picture of
make my products. what the future portends in the sales area as a result of
the current inflationary, recessionary, and complex
The Future competitive conditions prevailing in the economy.
Nevertheless, after reviewing with his accountant the re- The gist of the entire discussion can be best summa-
sults for the just-completed fiscal year, Mr. Brown was rized as follows:
concerned about UPI’s future course. “I know changes 1. Everyone present must recognize the very real diffi-
have to be made for next year as a result of this year, but culties that lie ahead in these precarious economic
I’m not sure what they should be.” Mr. Brown continued: times.
I think this next year is going to be a real bad year. 2. The only steps available to the salespeople and to the
Prices will probably fall like a rock from the levels company for survival during the rough period ahead
they reached during 1974 and as a result those items are as follows:
that would have been profitable for the company a. Minimize contacts with existing accounts.
aren’t going to be, and we have much too large an in- b. Spend the majority of time developing new
ventory as it is. It isn’t easy to take away customers accounts on the less competitive products, and
from the competition. As a result of this, I feel we selling new products to established accounts.
have to step up our efforts to get new lines and new 3. Concentrate on and promote our new items.
accounts. Recently, I’ve given some thought to laying 4. Mr. Brown and inside management are making and
off one or two people for economic reasons, but I’m will continue to make every concerted effort to find
not sure. I will probably give raises to all employees new products and new lines for the coming year.
even though it’s not a good business decision, but it’s In preparation for his meeting with Hank Stevens, Mr.
an ingrained part of my business philosophy. Brown had drawn up a list of activities to which Hank
should address himself while running UPI during
When asked if he had informed his employees of his
George’s upcoming vacation. Mr. Brown believed that
concern about the future, Mr. Brown referred to the minutes
upon his return from Europe his activities at UPI would
of a sales meeting that had been held in November 1974:
be increasing as a result of the problems caused by the un-
. . . Mr. Brown then presided at the meeting, and an- certain economic conditions. The first item on the list was a
nounced that Al King had won the coveted “Salesman possible redefinition of UPI’s marketing strategy.
of the Month” award. This was a “first” for our Al, and Mr. Brown now believed that UPI would have to be much
well deserved for his outstanding sales results in more liberal with respect to new products considered for
October. Congratulations and applause were extended sale. “I’m not saying we are going to get into the consumer
428 CASE STUDIES

goods business, but I think we need to give consideration convinced that if he hadn’t done some planning in the
to handling consumer products that require no service and past, the situation would be more drastic than it was. Yet at
that carry a high-profit-margin factor for the company.” the same time, he wasn’t sure that a more structured and
As he sat at his desk thinking about possible changes formalized planning process would put UPI in any better
he could make in UPI’s planning process, Mr. Brown was position to face the more difficult times that he saw ahead.

C A S E 2
The Paradoxical Twins: Acme and Omega Electronics
John F. Veiga

Part I contracts, thereby increasing our profits.” Acme’s basic or-

ganization structure is shown in Exhibit 1. People were gen-
In 1955, Technological Products of Erie, erally satisfied with their work at Acme; however, some of
Pennsylvania, was bought out by a Cleveland manu- the managers voiced the desire to have a little more latitude
facturer. The Cleveland firm had no interest in the in their jobs. One manager characterized the president as a
electronics division of Technological Products and “one-man band.” He said, “While I respect John’s ability,
subsequently sold to different investors two plants there are times when I wish I had a little more information
that manufactured printed circuit boards. One of about what is going on.”
the plants, located in nearby Waterford,
Pennsylvania, was renamed Acme Electronics, and
the other plant, within the city limits of Erie, was Inside Omega
renamed Omega Electronics, Inc. Acme retained its Omega’s president, Jim Rawls, did not believe in organiza-
original management and upgraded its general tion charts. He felt that his organization had departments
manager to president. Omega hired a new president,
similar to Acme’s, but he thought the plant was small
who had been a director of a large electronics
enough that things such as organization charts just put
research laboratory, and upgraded several of the
artificial barriers between specialists who should be work-
existing personnel within the plant.
Acme and Omega often competed for the same ing together. Written memos were not allowed, since, as Jim
contracts. As subcontractors, both firms benefited expressed it, “the plant is small enough that if people want
from the electronics boom of the early 1960s and to communicate, they can just drop by and talk things over.”
both looked forward to future growth and expan- Other members of Omega complained that too much time
sion. Acme had annual sales of $10 million and was wasted “filling in” people who could not contribute to
employed 550 people. Omega had annual sales of the problem solving. As the head of the mechanical engi-
$8 million and employed 480 people. Acme was neering department expressed it, “Jim spends too much of
consistently more effective than Omega and his time and mine making sure everyone understands what
regularly achieved greater net profits, much to the we’re doing and listening to suggestions.” A newer member
chagrin of Omega’s management. of the industrial engineering department said, “When I first
got here, I wasn’t sure what I was supposed to do. One day
I worked with some mechanical engineers and the next day
Inside Acme I helped the shipping department design some packing car-
The president of Acme, John Tyler, credited his firm’s tons. The first months on the job were hectic, but at least
greater effectiveness to his managers’ abilities to run a I got a real feel for what makes Omega tick.” Most decisions
“tight ship.” He explained that he had retained the basic of any significance were made by the management team at
structure developed by Technological Products because it Omega.
was most efficient for high-volume manufacture of printed
circuits and their subsequent assembly. Tyler was confident
that had the demand not been so great, its competitor
Part II
would not have survived. “In fact,” he said, “we have been In 1966, the integrated circuits began to cut deeply into
able to beat Omega regularly for the most profitable the demand for printed circuit boards. The integrated cir-
cuits (ICs), or “chips,” were the first step into micro-
miniaturization in the electronics industry. Because the
This case was developed from material gathered from the two firms manufacturing process for ICs was a closely guarded se-
by Dr. John F. Veiga. All names and places have been disguised. cret, both Acme and Omega realized the potential threat