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Notting Hall INDUSTRIES

As he listened in January 1990 to a presentation by Burhan one of his three division

managers, Thomas, president of NottingHall Industries, was beginning to draw some

conclusions. Within a week, he would have to guide a series of decisions on divisional

and corporate strategy and, somewhere along the way, determine each division

manager's bonus. About half the bonus was fairly automatically computed from profits

and performance to budget, but the other half would depend on his evaluation. He was

glad of the opportunity to apply his own judgment in the bonus-setting process, for he

had never quite trusted the numbers to give a reliable reading on a manager's

performance. On the other hand, he knew his unsupported judgments could be perceived

as being arbitrary.

CONTROL DEVICES DIVISION

Burhan had managed the Control Devices Division for three years and had done

reasonably well, although profit in 1989 was down a bit from the previous year. The

Control Devices Division made machine controllers for large specialized installations,

as well as numerous smaller installations, in the chemical, paper, and petroleum

industries. In the middle 1970s, the division had developed and patented an electro-

mechanical thrust transmission device that had allowed the division to achieve a large

market share. 1n the last decade, electronic components had been added to maintain the

company's competitive position.

Earlier in his presentation, Burhan had noted that competition came from unexpected

sources. Two months earlier, the division had lost a large customer in Denmark. His

European representative said the division's price should have been low enough to get

the business and hinted darkly at some under-the-table deal by the winning German

company. Because about one-third of the division's sales were in Europe, Thomas

wondered what the implications of this event might be. Burhan had said little about it

except that it had clobbered his bottom line.

COOKWARE DIVISION

Wanabil's report on the Cookware Division had shown remarkably consistent profits

and a high return on investment during the two years he had been manager. The division

made ceramic cookware that could go in the oven and on the table. Most sales were

through mass merchandisers like K Mart. The item was not branded and depended on

good design and wide distribution to maintain its sales volume.

The business was competitive, but Wanabil had shown a good sense of what would sell

in each distribution channel and geographical area. He had previously been division

director of marketing and had been promoted when his predecessor left to head a larger

operation in another company.

.

While listening to Wanabil, Thomas remembered that the division's Christmas sales had

benefited when a major competitor was shut down for two months to work on

compliance with environmental-protection standards. Thomas was glad that NottingHall

Industries had installed the necessary screening devices three years earlier.

Wanabil noted in his report that two of the division's three melting tanks and most of

the forming machines were ten years old and in need of replacement. In his long-term

capital forecast, submitted in both 1988 and 1989, he had estimated that RM30 to RM40

million would be needed to provide the new equipment.

ELECTRONICS DIVISION

Hamidah's report on the Electronics Division showed a disturbingly consistent low rate

of profit. Hamidah had taken over the moderately profitable division three years earlier.

The division's main product had been an automatic-frequency-control (AFC) component

that went into many radios and television sets. After joining the division, Hamidah had

designed a similar component that could be effectively used in cordless and cellular

telephones. Sometimes it was built into the telephone, and sometimes it was part of the

installation. The division's competition was mostly from larger companies, but Hamidah

had been able to break into the phone market by having a six-month lead with a superior

product.

Hamidah said that the only way to succeed in the business was to keep a jump ahead of

everyone else. An example of that, she said, was when she had recognized earlier in the

year that fast delivery was key to getting the order in about a third of the phone-

component business. Not only was speed important in some orders, but precise delivery

time was required by almost all customers to keep their inventory down; many

customers used just-in-time manufacturing systems. Hamidah's competition had

regional warehouses, which allowed them to deliver overnight to most places. So she

had arranged with an express service firm to deliver fast and reliably, usually by air.

Sometimes, when delivery was a week or more away, air freight was not used, but the

carrier's delivery could still be timed to within three hours. Hamidah believed the key

was reliability and that the higher direct cost per shipment would be less than the cost

of warehousing. Her volume was rising, but her costs had not gone up as much.

Hamidah estimated that her share of the radio AFC market was about 10%, and that her share

of the newer telephone-frequency-control market was nearly 25% and holding steady as the

market continued to grow. She had invested in new equipment in 1989 to be able to service

the growing phone market and capture economies of scale.

How would you evaluate the managerial performance of the three division managers?

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