The CEO’s Dilemma

If you are a regular reader of my blog you will almost certainly know by now that on the 14th. of September 2007, my book 'Making a Difference' will finally be launched onto the market. For this week’s blog I have decided to share with you a section from the end of Step 2 in the book ‘The CEO’s Dilemma', exactly as it appears in the book. You may also know that as from the 14th. of September onwards you will be able publish your own solution to the dilemma directly on the book’s website. By doing so you could also win some great prizes, including admission onto the Vlerick Management School’s course ‘Mastering Interim Management’ (worth wore than 4150Euro’s + VAT), or an Acer TravelMate Laptop computer and many other prizes (the website will have more details on or around the 14th.). For now you simply need to know that your answer (or advice, however you like to call it) must not be longer than 500 words.

Because I am in a generous mood, I have one additional bonus for my blog readers: If, when you have read the dilemma, you would like to ask a question directly to either David the CEO, or John the Sales Director, or Peter the Production Director, or Samantha the Marketing Director, or indeed to Matthew the CEO’s bank manager, you may do so by using the comments section of the blog. You will receive an answer….

'The CEO's Dilemma'

David, the CEO of an electric lighting manufacturer, saw that year on year his profitability and sales were falling behind, to the extent that urgent action had to be taken. He was losing market share and at this rate his business would go bankrupt in less than 18 months. So David called his senior managers into his office one by one and asked each of them the same question.

First he asked John, his loyal sales director: “You’ve worked with us for fifteen years, why do you think it is that in the last five years our results have become steadily worse?” The sales manager thought it over and said: “The problem is that the market is changing faster than we are – we have been too slow to adapt. Our range of lighting is far too limited; we need more models, more colors, we need to offer our distributors a complete product range so they don’t look elsewhere. We have to become their sole supplier, so we don’t lose so many deals to outsiders.”

The CEO then called in Peter, the production director, and asked him the question. Peter replied: “The problem is that we have been adding more and more products to our range. We now have so many varieties of every type and color, that our production costs are running too high, because the production runs are too short and uneconomical. The solution is simple: cut all the models that are not selling well and reduce the number of colors and varieties for the others. In short, trim down our catalogue and offer only what is economical to manufacture. We may lose some business, but we’ll become far more profitable.”

Next the CEO called in his youngest board member. “Samantha, as Director responsible for marketing what do you suggest we do to turn around our worsening financial results?” “That‘s easy”, she answered, “Go up market, go direct. We have become too remote, our product range is too narrow and old-fashioned. The production department cripples us by telling us that things can’t be done! Our customers know what they want, we just need to offer it to them at a price they are prepared to pay. So what we should do is shut down our production, source all the lighting products globally, and re-brand them with designer labels endorsed by celebrities. We keep in touch with our end customers by opening showrooms in strategic locations, staffed with trendily dressed lighting consultants, and we cut out the distributors by selling directly on the Internet.”

Lastly the CEO spoke with his bank manager, Matthew. He had known him for twenty years and they had built the business together, the bank having provided the loans for starting up and subsequently met their financing needs, whether for production equipment or new offices. Matthew suggested: “If I were you David, I would complete the modernization program we have so often discussed. After all it’s been more than ten years since you last purchased new machinery. The machines you have are no longer as efficient as they could be. Without new equipment, you can never become as cost-efficient as your Asian competitors.”

The CEO went home for the weekend and reviewed the four basic arguments that his advisors had put forward. Each of them was so confident of his or her approach, that they had all guaranteed sure-fire results. But which way should he turn? He made a single PowerPoint slide summarizing each of the four key arguments. Much to the annoyance of his wife, he pinned it to the wall beside the bed so that he could focus on it before going to sleep. He told her that it could mean life or death to the business, and that the quality of their retirement years depended on it. Although she wanted to help him she could only say: “David, go to sleep. In the morning everything will be much clearer, and you will work it out.” Sure enough, the next morning David woke up and came to a decision.