Crisis at Wrentham Corporation

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Question: Crisis at Wrentham Corporation A Case of Executive...

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Crisis at Wrentham Corporation

A Case of Executive Selection after Merger

On the morning of August 1, 2001, Hal Benning, chief executive officer of Wrentham Corporation, a large

diversified manufacturing company located in Houston, Texas, picked up the phone and punched in the number

of Frank Powell, chairman of the board and longtime friend and associate. The news would not be good.

“What’s up, Hal?” Frank asked. “You sound troubled.”

“The quarterly numbers are in and Computerstat is going to show another net loss, about $2.5 million. What’s

more, I’ve just learned that George Steele will be stepping down as division head at the end of the month to take

a position with one of our competitors. He wants to move on while he is still marketable. George feels that if he

stays and the division’s merger with Microstat fails, his career will be damaged”.

            “I’m sorry to hear that, but I can’t say I altogether blame him,” said Frank. “This merger has been an

awfully messy business.”

            “It’s been rough for all of us,” interjected Hal, “but we told the stockholders when we decided on the

acquisition that we could make the new combined division profitable.”  

            “That we did, Hal,” agreed Frank. “Obviously, we have quite a task in front of us. Where do we stand

today?”

            “We are still well behind the planned integration schedule and our costs are way over budget. I know both

the Microstat people and our folks from Home Computer are trying to work together, but they just don’t share a

common vision for the business.” Hal continued, “For example, no one seems to agree about our international

strategy. The Home Computer managers view the domestic market as our bread and butter and see foreign

markets as only an incremental opportunity. On the other hand, Microstat’s position is that penetrating foreign

markets is the key to our future growth, profitability, and even survival. Operationally, we have the same sorts of

problems. R&D has not made significant headway on any project requiring cooperation between Wrentham and

Microstat people. My feeling is that we are to a large extent still managing two separate organizations.”

            “I noticed that many of the manufacturing and financial reports are still segregated,” stated Frank.

            “Integrating MIS remains a problem,” acknowledged Hal, “but what concerns me most is a lack of unity

and trust that extends all the way down to the factory floor. Out at the Santa Clara plant, Microstat people won’t

follow the advice of our process engineers because they don’t trust our knowledge of their products and markets,

and some of the Home Computer managers are blaming Microstat for our performance problems. This type of

divisiveness has to go. If it continues, we’ll never achieve greater economies of scale or improve our product

line.”

            “The competition is getting ferocious,” observed Frank. “The low-end marketers are beating us on price

and the market leaders have superior products. If that isn’t bad enough, getting access to distribution channels

has never been tougher and some of our costumers believe we may not be around much longer. Our dealers are

getting nervous. If we don’t take some action soon we’ll be in trouble.”

            “True enough, but the real problem is here at home, Frank. People are getting burnt out on the integration

program; all those task forces and meetings divert their attention from the problems facing the business in the

marketplace. We have to find someone who is strong enough to turn this division around.”

            “You’re quite right, Hal. I think we need to bring in someone to help us with this one. Why don’t you see if

Bill is available?”

            “Agreed. I’ll take care of it right away.”

BACKGROUND

            Wrentham Corporation was founded in 1936 by William Wrentham as an office equipment firm. In 1978, it

entered the microcomputer industry and two years later was restructured into three autonomous divisions:

Wrentham Office Supply, Wrentham Communications, and Home Computer, now called Computerstat. Before

the merger, Home Computer, with its headquarters and manufacturing facilities located in Houston, Texas,

designed and produced relatively unsophisticated, low-priced microcomputers for both the home user and

business market segments. Its key strength was in the home user market, a segment that represented nearly 80

percent of Computerstat’s total sales. It also sold machines to small and medium-sized businesses. With annual

sales of $214 million per year, Home Computer was one of the larger microcomputer manufacturers in the United

States. The division survived an industry shakeout in the mid ‘90s but had been unable to establish a leadership

position in the PC industry.

            Starting in 1998, Home Computer made some tentative attempts to sell PCs in Europe, particularly in

France, Italy, and the United Kingdom, but had not been particularly successful. The great majority of its sales

were still concentrated in the continental United States and distributed through mass market channels.

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