Al Dunlop at Sunbeam Harvard Case Solution & Analysis

Al Dunlop at Sunbeam Case Solution

After studying the case, it seems like that Al Dunlap was just there to make the shareholders happy while trying to make a fortune for himself which he actually did. He did not only charge the company heavily but he also helped his close allies to make a fortune by recruiting them as the board of directors of the company. The tactic that he used to be employed was to link his benefits with the growth in the share price which in turn meant that the performance of the company would also improve. This kind of tactics made shareholders believe that the man is really sincere and since he had got a reputation in the market therefore they blindly trusted him.

Al Dunlop laid a plan to restructure the firm in 4 (four) steps in which it was decided that in the first phase he would recruit a highly expert board of management, then they would do the layoffs and would divest many other business units which were not in-line with the core business and then lay a plan for its future growth. The first three steps were executed well but then the forth step was just a gimmick to please the shareholders where they were shown a high growth pattern of the company. The first phase of restructuring was successful which increased the stock price to $25.37 in November 1996. He had planned to cut down the operational expenses by $225 million by closing 26 factories, consolidating the administrations and decreasing the labor force by 6000. In the second phase, he planned to launch new products in product line and expanded operations outside of the national boundaries. Although Al Dunlop tried to implement the plan as it was decided and that he might sincerely wanted to grow the company since he was an exceptionally high paid executive as compared to the market but since he lacked the expertise in doing so, therefore the company was unable to perform according to the plan. This led to taking many spontaneous and unorganized decisions by Al Dunlap which further worsened the condition of the company and he finally got fired from Sunbeam.

In the wake of reviving the company after share prices started slipping, he took another step of downsizing in order to restructure the firm, which in fact was a huge mistake and worsened the position of the company in the market even more but that was the way he dealt previously for rescuing the firms. This kind of restructuring had already taken place in the company on a wide scale which had positively contributed at the bottom line of the company but according to his own theory, restructuring could be done only once, if anyone thinks downsizing the firm for the second time thinking that it is a good decision then he is wrong.

Reasons for Sunbeams Success:

The reasons that helped Sunbeam to revive from its bankruptcy was due to many factors. Few of them are discussed as follows:

  • After announcement of Dunlap joining Sunbeam created a positive outlook for the company in the market. This forced the investors to revise the share prices of the company due to positive outlook of the company due previous track record of Al Dunlop.
  • Al Dunlop already invested high sums of money in the company by purchasing its share before the news broke out in the market about him joining Sunbeam which also built a positive image of the company while raising the share value.
  • Al Dunlop eliminated poor performing units and brought huge sums of money back into the company which improved the performance of the company and its image.
  • He brought huge cost savings for the company.
  • Dunlap restructured the monetary compensations and bonuses for all outside directors and also decreased the size of stock grants than were given.

Reasons for Sunbeams Failure:

  • Al Dunlap’s leadership style was harsh and very limited to create value for the shareholders in the short-run.
  • The decision to purchase the three appliance companies; Coleman, First Alert, and Signature Brands for the amount of $2.5 billion. These companies were already not performing and buying them gave a bad indication in the market
  • Sunbeam started offering seasonal products at less price to the consumers in off seasons. In such a case, retailers ordered to buy the products in off seasons but the stock used to get delivered in peak seasons which hindered company sales.
  • The product development department of Sunbeam was inefficient but still Al Dunlap reduced the time of product development from 18-20 months to just 6 months which wasn’t enough.
  • Storing huge amounts of inventory led to operational inefficiencies, shortage of space, high cost of storing inventory and therefore operational losses.

Alternatives Analysis:

Al Dunlap was hired for his previous market reputation and expertise in downsizing and restructuring. He was responsible for restructuring the company in a way that it could generate higher cash flows in future. During the initial 6 months, everything was working perfectly, tensions had eased out and the value of the stock also rose, he did not have to lay-off the employees again. In my opinion, the best alternative he could do was to not reduce the prices of seasonal products and attract new customers to sell the products, this strategy would lead to increase in sales. Strategic approach for marketing could be used and advertisement as well. By capturing greater number of consumers would lead to higher profitability rather to do storage in the warehouses.

SWOT Analysis:

Strengths:

  • Al Dunlap had an appeal in the market and every shareholder of the company considered him a savior. Due to his image in the market, he had the power to make changes in the company accordingly.

Weaknesses:

  • Short term vision and short term strategies were the weak points for Al Dunlap.
  • Not being able to practically implement long term plans in a company.
  • The Board of Directors had no expertise in managing the firm.
  • Uncompetitive marketing and advertising strategies used by Sunbeam’s management to sell its products.
  • Weak product development department.

Opportunities:

  • Restructuring the company and then maintaining the image of the company would have made sunbeam stand apart from many other companies.

Threats:

  • Sunbeam already had a bad image in the market that affected its stock price adversely and when it failed after restructuring which put the company under even more pressures from the market.
  • It was difficult for new entrants to enter in market because as it required substantial amounts of investments. Sunbeam had got strong competitors in the market.

Conclusion and Recommendation:

It can be concluded that due to inefficiencies from both the sides, management of Al Dunlap and the shareholders, the company had to pay a high price which otherwise, after being restructured could have gained sufficient value in the market to remain a profitable company. But since sales value overestimated the income statement of the company therefore it led to its downfall with an increase in the operational losses due to piling up of huge inventories. Also, It would have been a better option for Al Dunlap to not charge a very high salary from the company as it mainly reflected on the income statement while undermining the bottom-line of the company. Even the shareholders should have thought about paying high amounts of salary after restructuring the company.

It was in the best interest of the shareholders to restructure their management team and fire all the board of directors hired by Al Dunlap. The shareholders should have also sued Al Dunlap for dragging the company in a much worst condition than it was before.........

 

 

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