9-584-012 REV: MAY 11, 2007
ROBERT J. DOLAN BENSON P. SHAPIRO
Milford Industries (A) On Friday, July 15, 1983, Harrison “Harry” Oates was suddenly promoted to district sales manager of the Capital District for Milford Industries. Oates, formerly assistant product manager based in Milford’s home office in Chicago, replaced Samuel Goldberg who earlier that week had died unexpectedly. The Capital District included Delaware, the District of Columbia, Maryland, Virginia, and West Virginia. Oates would work in the district office in Baltimore, Maryland. Ben Donovan, Milford’s national commercial sales manager, congratulated Oates and said it was a great opportunity for him to prove himself as an operating manager. Donovan said it was time to get the district “back on the move,” apparently implying the district had been a problem in recent years. Oates also met with Jack Falzarano, who was based in Chicago. Falzarano had been the sales manager for the eastern region, which included the Capital District. He was slated to leave the following week to become marketing vice president of Milford’s United Kingdom subsidiary. The new eastern regional sales manager would be Ted Newbury, previously a district manager on the West Coast. Newbury, promoted only two weeks ago, had returned to his Los Angeles office after spending a week with Falzarano visiting each district in the territory. Falzarano met briefly with Oates on Friday, but explained that because of personal commitments related to his move to Europe he could not meet with Harry over the weekend or on Monday. They scheduled a Tuesday morning meeting to discuss the district. Falzarano promised to prepare a brief description of each of the eight salespeople in the district by early Monday afternoon. He also mentioned that the district’s monthly sales meeting was scheduled for Friday, July 22, in Baltimore: I wish I could be with you at the meeting but I must be on a plane to London at 3:00 p.m. on Tuesday afternoon. You might consider spending next Wednesday and Thursday meeting the salespeople in the field and having the sales meeting as an introductory session. On the other hand you might want to postpone the July 22 meeting until you have traveled with each salesperson and assessed the situation. You might want to discuss the matter with Ted Newbury before you make a decision. Falzarano and Oates agreed to meet again at 9:00 a.m. on Tuesday morning. Falzarano then gave Oates a collection of material on the district. He again mentioned that he would have his own brief assessment of each salesperson available Monday and that Oates would find the detailed personnel files for each person at the district office in Baltimore. He cautioned him against asking for the district ________________________________________________________________________________________________________________ Professors Robert J. Dolan and Benson P. Shapiro prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1983 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
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office files to be sent to Chicago since Falzarano felt that it might unduly concern the office and sales personnel.
Harry Oates Harry Oates had turned 29 in June 1983. He had grown up in Cleveland and attended Morgan State College in Baltimore where he majored in economics. He had been active in student government and varsity sports and maintained an enviable academic record. After graduating from college in 1975 he joined the navy as a line officer, serving aboard destroyers operating off Asia and in the Mediterranean. He had a successful tenure in the navy. He then attended the Graduate Business School at Columbia University, graduating in 1980. Among his honors were several scholarships and consistent membership on the dean’s list. Upon graduation he joined Milford Industries as a salesperson; his territory included part of Chicago and the suburban and exurban areas north and west of the city. He was successful in winning several sales contests, and was viewed as a “comer.” In April 1982 he became assistant product manager responsible for part of the measuring instrument business, and again he was successful. Oates had been married since entering Columbia and had two children—a boy, 3, and a girl, two months.
Milford Industries Milford Industries with 1982 sales of $540 million was one of the world’s largest manufacturers of tools and accessories. Three separate sales forces sold hand power tools to different customers: 1.
The industrial sales force (1982 sales: $234 million) called on large end users, industrial distributors, and mill supply houses.1
2.
The private label sales force (1982 sales: $96 million) sold to a few large retail organizations such as Sears, Wards, J. C. Penney, and K mart.
3.
The commercial sales force (1982 sales: $210 million) called on all other retailers including department stores, hardware stores, discount stores, and other outlets.
Milford’s Commercial Product Line Management estimated that Milford held approximately 21% share in the commercial sales categories in which it competed. Exhibit 1 provides sales, budget, and margin data by the six product lines. There were substantial differences among the lines: 1.
Stationary metalworking power tools: This line divided into two distinct groups. Better than half of the sales were of bench grinders used to grind and sharpen tools. These retailed from about $40 to $220. The remainder of the sales were for metalworking lathes and electric hack saws; these retailed from $300 (simple hack saw) to $2,000 (lathe). Items in this category tended to be
1 A mill supply house played the role of hardware store to factories and other industrial users, typically offering a wide range of products from paint to tools to maintenance supplies.
2
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for the very serious home craftsman or the small commercial concern. The firm did not view these items as gift-oriented or promotable. 2.
Stationary woodworking power tools: These included stationary circular saws, band saws, lathes, drill presses, shapers, and planers. They retailed for between $250 and $800 and were used by avid home hobbyists. Some of these tools were promotable as gift items, primarily for Christmas, Chanukah, and Father’s Day.
3.
Portable power tools: These tools, such as sanders, saber saws, drills, and routers, were highly promotable and often sold as gift items. They retailed for between $15 and $90.
4.
Hand tools—general shop: These included a wide variety of tools ranging from hammers and screwdrivers through saws. They retailed for between $2 and $60 and were purchased by users and as gifts by a wide range of individuals. Some were promotable.
5.
Masons’, plasterers’, and bricklayers’ tools: These had developed from a line acquired in 1973. The tools were specialized and used by professionals and home craftsmen. Most of the professional sales came through the industrial sales force and are not counted in Exhibit 1. Items included various types of trowels, hammers, and so on, and retailed in the $2 to $20 range. Sales were concentrated in the spring.
6.
Measuring instruments: These included tape measures, replacement tapes, levels, calipers, micrometers, combination squares, protractors, yardsticks, and gauges of various types. Prices at retail varied from $1 to over $40. Some tools were highly specialized but a few, such as tape measures, were promotable.
Milford’s Commercial Sales Force Milford’s commercial sales force consisted of 103 salespeople and 12 district managers who reported to 3 regional managers who reported to the national commercial sales manager. The regional managers had three prime tasks: (1) participate in the making of sales management and marketing policies, (2) call on major accounts within the region, and (3) supervise the district sales managers. They operated from offices in Chicago and spent much of their time on policy matters involved with pricing, promotions, incentive programs, and product planning. They also assisted district sales managers in recruiting and selection. This was not a large part of the job, since turnover was low. The 12 district sales managers were responsible for recruiting and selection, training, evaluation, and supervision of the sales force. Each also made calls on major accounts within the district but did not have actual sales responsibility. The sales force was experienced and believed to be of high morale. Ages ranged from mid-20s to 65, the typical retirement age. Most were college educated, especially the younger ones. Each salesperson covered a specific territory and called upon department, discount, and hardware stores as well as home centers2 and lumberyards. In multiunit operations where the buying and store operations functions were separate, the salespeople were expected to call upon each store to arrange for display and placement. It was generally believed that better salespeople conducted in-store
2 Home centers were large retail units which sold lumber, tools, electrical, heating, and plumbing supplies, and other things for the do-it-yourself market. They had grown rapidly in the 1970s and early 1980s.
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training sessions for retail sales personnel. These sessions were deemed especially important for new products. Salespeople were paid a combination of salary and commission. The salary was negotiated by the district manager and salesperson, and usually was based upon experience, tenure with the company, account service, performance in special programs such as promotions or new product introductions, and general effort. Commission was 2% of sales. The company paid all justified business expenses including a mileage allowance for automobiles. The district managers were responsible for expense control. District managers were paid a base salary plus a small commission called an override on district sales. Each salesperson was expected to make from five to six calls per day. Brief reports were required for each call. Milford’s management believed the call reports to be relatively accurate because of a stringent company policy requiring dismissal for falsifying records.
The Capital District In the Friday meeting alone with Harry Oates, Jack Falzarano had provided this brief introduction to the Capital District: Sam Goldberg’s district was a problem. It wasn’t living up to its potential. I have been concerned with the problem for quite some time. We had plenty of data showing that we weren’t getting the sales we should there. It’s a great area—vibrant and growing. It seemed like Sam wasn’t managing the eight salespeople very well. There have been some indications that morale was lower than it should be and turnover higher. The salespeople are a mixed bag as you will see. From your point of view it is a real turnaround situation. If Sam hadn’t been so old we probably would have taken some action one way or the other. But he was close to retirement, and the problems weren’t urgent. It seemed wrong to replace Sam since he was not anxious to take early retirement. He seemed healthy and really enjoyed working with his people and the customers. But he was clearly not as effective as he should have been. We began to analyze the district in depth about a year ago and have gathered considerable data. I have copies of the material for you. By next Monday afternoon I’ll have my comments on each salesperson. Remember, however, that I was only in the position three years and that as a regional manager it wasn’t my business to second guess a district manager. So my comments may be of limited value. Sam’s own files will be of additional help. The material Oates was given is reproduced in Exhibits 2 to 7.
After the Weekend Early on Monday afternoon, July 18, Oates received the brief description of the salespeople, as Falzarano had promised. (This report is reproduced in Exhibit 8.)
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Somewhat surprised by the brevity of the report, Oates hoped for more insights from the 9:00 a.m. Tuesday meeting with Falzarano. In general, however, Oates found the meeting disappointing as well. Falzarano seemed preoccupied with his move to Europe. The meeting turned out to be a general reiteration of: (1) the meeting on the previous Friday afternoon, (2) the data presented to Oates at the meeting, and (3) the brief memo, given to him on Monday, describing each of the district salespeople. As Oates reviewed the Tuesday morning meeting mentally, two things stood out. First, Falzarano had stressed the poor performance of the district relative to both the region and the nation. He had emphasized “the lack of control and discipline” which Goldberg, the previous district manager, had allowed to exist. Second, he reiterated the need to make some decisions about the upcoming Friday sales meeting. Following the meeting, Oates called Ted Newbury, the new regional manager who was preparing to leave his current district manager’s assignment in Los Angeles. Newbury sympathized with Oates’s predicament but provided no concrete help. To Oates, the summary seemed to be, “You’ll have to run things on your own for the next two weeks; then I’ll be working as eastern regional manager and we can move along together.” Oates was pleased with the rapport he had developed with Newbury, and with Newbury’s apparent willingness to let him run the district on his own. Still, he was concerned about his lack of concrete advice as to how to proceed.
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Exhibit 1
Commercial Product Line: U.S. Sales, Budgets, and Gross Margins ($ in millions) 1983 Budget
1982 Sales
First Half 1983 Budget
$
% of Total
$
% of Total
Stationary metalworking power tools
12.0
5.7
14.0
6.0
6.8
6.6
Stationary woodworking power tools
34.0
16.2
38.0
16.2
16.0
Portable power tools
64.0
30.5
72.0
30.8
28.0
Hand tools—general shop
72.0
34.3
76.0
32.5
Masons’, plasterers’ and bricklayers’ tools
10.0
4.8
12.0
5.1
Measuring instruments Total or averagea Source:
%
$
% of Total
7.0
6.6
40
4.8
6.7
15.4
15.6
14.7
36
12.2
16.9
27.0
32.0
30.2
33
21.2
29.4
34.0
32.8
32.0
30.2
30
21.6
30.0
9.0
8.7
8.8
8.3
50
5.0
6.9
$
18.0
8.6
22.0
9.4
10.0
9.6
10.4
9.8
40
7.2
10.0
210.0
700.0
234.0
100.0
103.8
100.0
105.8
100.0
34.3
72.0
100.0
Company records.
aPercentage totals do not add to exactly 100% because of rounding.
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1982 Gross Margin
% of Total
$
% of Total
First Half 1983 Sales
Milford Industries (A)
Exhibit 2
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Memo on Capital District December 7, 1982
To: From: Subject:
Ben Donovan, National Commercial Sales Manager Jack Falzarano, Eastern Regional Manager Capital District
As we decided at our meeting last week, I have attempted to pull together some material on the Capital District. Everything that I can see shows clearly that we have a problem there. I looked at three areas: (1) potential of the district versus our penetration, (2) sales growth of the district versus the region and the country, and (3) profit delivery and growth versus the region and the country. Potential According to the October 25, 1982 Sales and Marketing Management Survey of Buying Power, the district has 5.7% of the potential sales in the nation: Buying Power Indexa Delaware Maryland District of Columbia Virginia West Virginia
% of U.S. Retail Sales
.2712 1.9667 .2956 2.3940 .7694 5.6969
.2755 1.9251 .2720 2.3734 .7372 5.5832
aCasewriter’s note: Buying Power Index is a weighted index that converts (a) population, (b) buying income, and (c) retail sales into a measure of a market’s ability to buy.
Our sales in the district in 1982 were only $10,080,000 or 4.8% of our sales. This alone would certainly be cause for concern but, to make matters worse, our primary competitive strength in commercial sales has always been in the Boston-Washington-Chicago triangle where the private label sales have been relatively lower and the commercial sales relatively higher. Thus, we are led to expect below-average performance in the South West, Mountains and Plains but must make up for it in the East. As another way of looking at the situation, our average sales per salesperson in the U.S. is $210MM/103 or $2,040,000. The average in the district is $10,080,000/8 or $1,260,000—only 62% of the average. Sales Growth ($ in millions)
1982 1981 Growth $ Growth % 1981 1980 Growth $ Growth % Average growth %
U.S.A.
Region
Capital District
$210.00 186.92 $ 23.08 12.3% $186.92 170.20 $16.72 9.8% 11.1%
$99.00 88.80 $10.20 11.5% $88.80 79.00 $9.80 12.4% 12.0%
$10.08 9.52 $.56 5.9% $9.52 8.90 $.62 7.0% 6.5%
Thus, the sales growth in the district is about one-half of that of the region and only slightly better than onehalf of that for the country. Profitability U.S.A. Gross profit (%) 1982 1981
34.3% 34.8
Region
Capital District
34.6% 35.1
34.0% 34.5
The profitability figures are below par when compared with both the nation and the region.
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Exhibit 3
Individual Sales Performance—Capital District, 1982 1982 Sales ($000)
% of District
1,840 1,600 1,500 1,300 1,220 1,120 880 620 $10,080
18.3 15.9 14.9 12.9 12.1 11.1 8.7 6.2 100.0%
Salespersona 1. Eaton 2. Burke 3. Durfee 4. Harlow 5. Furness 6. Gibson 7. Caplan 8. Alderson
First Half 1983 Sales ($000)
% of District
828 752 780 638 488 504 476 360 $4,826
17.2 15.6 16.2 13.2 10.1 10.4 9.9 7.5 100.0%
1982 Active Accountsb 205 310 160 120 220 130 307 458 1,910
1982 Calls per Year 1,120 1,350 1,470 1,525 1,075 940 1,210 1,640 10,330
Source: Company records, including call reports for data on the number of calls. Note:
Percent totals are rounded.
aIn order of decreasing 1982 sales. bActive accounts were those that placed an order in the past year.
Exhibit 4
Individual Compensation and Expenses—Capital District, 1982
Salespersona
Salary
Commissions
Total Compensation
Expenses
Total Compensation plus Expenses
1. Eaton 2. Burke 3. Durfee 4. Harlow 5. Furness 6. Gibson 7. Caplan 8. Alderson
$40,000 32,000 22,000 28,000 26,000 30,000 19,000 14,000
$36,800 32,000 30,000 26,000 24,400 22,400 17,600 12,400
$76,800 64,000 52,000 54,000 50,400 52,400 36,600 26,400
$8,200 13,600 8,600 7,800 14,800 7,000 17,800 14,600
$85,000 77,600 60,600 61,800 65,200 59,400 54,400 41,000
Total Average
$211,000 26,375
$201,600 25,200
$412,600 51,575
$92,400 11,550
$505,000 63,125
Source: Company records. aIn order of decreasing sales performance.
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Eaton Gibson Furness Alderson Burke Durfee Harlow Caplan
Maryland and Delaware
Metro Baltimore except Harford County Harford County and Delmarva Peninsula Rest of Maryland Western part Eastern part Suburbs of Washington, D.C. Entire district Entire state
Territory 504 427 358 933 525 185 139 883 3,954 494
Number of Potential Accountsa .8891 .4990 .8498 .8513 .8730 .6697 .2956 .7694 5.6969 .7121
Buying Power Indexb .9024 .5128 .7788 .7276 .8852 .7678 .2720 .7372 5.5838 .6980
Percentage of Total U.S. Retail Salesb 2,041 1,048 1,785 2,208 2,121 1,138 613 1,991 12,945 1,618
Population (000)b
1,806 6,524 4,239 28,738 9,045 1,301 61 24,070 75,784 9,473
Land Area (sq. miles)c
-9-
Source:
Company records.
Dollar Sales (%) Stationary metalworking Stationary woodworking Portable power Hand tools Masons’, etc. Measuring instruments Total
3% 16 29 39 3 10 100%
$56 294 534 716 56 184 $1,840
Eaton
1% 4 45 45 – 5 100%
$16 64 720 720 – 80 $1,600
Burke
7% 20 33 20 10 10 100%
$106 300 496 300 148 150 $1,500
Durfee
Individual Salesperson’s 1982 Sales by Product Line
Dollar Sales ($000) Stationary metalworking Stationary woodworking Portable power Hand tools Masons’, etc. Measuring instruments Total
Exhibit 6
8% 18 28 32 5 9 100%
$104 234 364 414 66 118 $1,300
Harlow
cData on land area from Commercial Atlas and Marketing Guide, Rand McNally and Company.
7% 17 34 31 3 8 100%
$86 208 414 378 36 98 $1,220
Furness
3% 12 34 37 6 8 100%
$34 134 380 414 68 90 $1,120
Gibson
bBuying Power Index, retail sales, and population data from Sales and Marketing Management Survey of Buying Power.
– 10% 32 40 8 10 100%
– $88 282 352 70 88 $880
Caplan
3% 14 35 41 2 5 100%
$18 86 218 254 12 32 $620
Alderson
4% 14 34 35 5 8 100%
$420 1,408 3,408 3,548 456 840 $10,080
Total
aNumber of potential accounts estimated from the Census of Business. Potential accounts include all hardware, building material and department stores, and 30% of other general merchandise stores. Each store, not each company, was counted as one potential account.
District of Columbia West Virginia Total Average per salesperson
Virginia
Salesperson
Description of Assigned Territories
States
Exhibit 5
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Exhibit 7
Crude Map of the Capital District
Durfee
Caplan West Virginia
Note:
Solid lines = state boundaries; broken lines = territory boundaries.
aDistrict of Columbia was covered by Ed Harlow.
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Md.
Delaware
Gibson
Virginia
Alderson
a
n Eato
Furness Md.
Burke
Va.
Milford Industries (A)
Exhibit 8
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Falzarano’s Memo on the Salespeople
Alderson:
Bill Alderson joined the sales force in December 1981. He is 25 years old and had been a food company salesman. Before his arrival, the territory had been a problem. He seems eager to learn and hard working if not exceptionally bright. I’m not sure that he is the best person to turn the territory around because he does not seem too aggressive in his sales approach. On the other hand, he has opened and reopened quite a few new accounts, although most are small.
Burke:
Ernie Burke is a solid performer who refuses to sell based on our merchandising programs and to push our most profitable items. He has been with us and in the same territory for fifteen years and is in his early forties. He has a classic sales personality but is a bit lazy.
Caplan:
Sonny Caplan is 31 and has had the territory for two years. He seems unwilling to really work hard. He has concentrated on opening the larger accounts without too much success. This is definitely one of your more serious problems.
Durfee:
Jean Durfee is developing into a solid performer. She is in her early forties and has been with us for five years. She joined us from a smaller competitor. Her major problem is that she’s in all of the smaller stores but not active enough in the large ones.
Eaton:
Doug Eaton is one of the long-term strong performers in our sales organization. Although he’s 62 and has been with us for over 30 years he is able to adapt to new merchandising programs. There is no doubt, however, that he is slowing down because of age and health. When we talked to him about decreasing his territory two years ago, he reacted violently. He is very popular with the customers and the sales force.
Furness:
At one time Tom Furness was a good salesman. But, he is having some severe problems. He is in the process of getting a divorce and he seems to be drinking to excess. He has eight years’ experience with us and is in his early thirties. It would be a shame to lose him now.
Gibson:
Zeke Gibson has been successfully investing in real estate and seems to be losing his interest in Milford. His real estate investments apparently provide enough income to insulate him from financial pressure. He is in his early fifties and has been a good performer for at least twenty years.
Harlow:
Ed Harlow is a plugger—an average guy who seems OK. He is in his late thirties and has been with us for twelve years.
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