Criticism of GAI-Tronics' Strategy in the early 1990's
GAI-Tronics Corporation was a $30 million company with tremendous
share in its traditional markets when I joined the West Region Sales Team in
1990. Technology was rapidly obsolescing
the company's mainstay, the Page/Party product
line, and revenues were steadily declining, despite regular price increases.
In response, management pursued several commonly accepted mature market strategies:
NOTE: This was
written in 1998 (a couple years after I left GAI-Tronics) as an academic
exercise. GAI-Tronics had already been acquired by Hubbell
and many changes were already underway. Although my comments did irritate
several remaining GAI-Tronics employees, they were not intended to "get
back" at GAI-Tronics in any way. They were designed to demonstrate my
personal understanding of the bigger issues and provide an insight into what I
would have done differently. GAI-Tronics is a completely differently
company now and the following comments should be viewed only as a historical
- Cut Costs
Efforts to lower costs that destroy employee moral and loyalty are seldom
worth the price. VP Dan Peters initiated several unsound cost-cutting
policies, including a surprise $10,000 cut in base pay, which eventually
cost Dan his job. Consolidation of product lines and the introduction
of parts kits were a good idea. Refusing to sell board-level
components, when much of GAI-Tronics competitive advantage came from
customers being able to perform their own repairs, was a bad idea.
Nowhere was cost-cutting more evident than in the compensation plans.
Management figured that if pay was cut and no one quit, they could get by
with cutting some more. Bad move. GAI-Tronics lost many
high-quality career employees and those that remained won't forget.
Generally, sales and marketing efforts were viewed as an
expense and salespeople as replaceable. A set amount was budgeted rather than a percentage of revenue. VP Dan
Peters once bragged about trimming sales costs during a national sales
meeting. Of course, I called him on it. The compensation plan did not encourage or reward
sustained high performance. Reps that achieved above quota performance
were thoroughly spanked with higher quotas and bonus targets. I know
of several career employees that increased sales over the prior year and received less pay.
The maximum bonus was attained at 12 percent growth from the previous
period. Though slacking off or sandbagging are completely against my
nature, whenever President Ed Smith would ask about my numbers, I would
confidently forecast 12.01 percent growth. I am proud of this because the
accuracy of my forecasting confirmed my
close and thorough understanding of my markets and my customers. I
thrived under Dan Peters and his cost-cuts because I understood the
constraints and the compensation scheme thoroughly. I consistently
used the system to my advantage, in order to protect my customers and my
personal income. When I am able to affect policy, employees will never
be placed in this position.
- Leverage Existing Resources
GAI-Tronics operates a world-wide sales organization with strong
relationships with all major architectural/engineering firms, major
contractors, and management of industrial process and manufacturing
facilities world-wide. President Ed Smith recognized the opportunity
for adding new products to existing lines and would often comment on adding
more goodies to our bag. Still, products were often
selected with poor strategic fits and agreements negotiated without input
from the field. Sales reps were then asked to sell the new lines to
existing clients. So many products were discontinued or dropped after
sales reps made commitments to customers, that many became "gun
shy" about introducing any new products or recommending them to their
customers. Comments regarding the
lack of corporate commitment echoed throughout the organization. Good
strategy - bad implementation.
- Acquire Existing Competitors
GAI-Tronics had only one major competitor in the 1980's, FEMCO.
The "Beat FEMCO" battle cry had long been a key component of the
company's culture and mission. In reality, FEMCO was only a token competitor. GAI-Tronics compensation
plan actually induced sales reps to sacrifice
commission by matching FEMCO discounts in order to meet equipment booking
quotas, a policy which I strongly opposed. They were weak and
could only win orders through drastic price-cutting. Their sales organization
was dominated by disgruntled ex-GAI-Tronics employees with an ax to grind.
Frankly, I was shocked to learn of the $7 million acquisition. FEMCO
had no substantial assets, technology, or good will. It was a textbook
mature market strategy that demonstrated no direct knowledge of the company's
customers and markets. In less than a year, FEMCO's best price market
space had been filled by Stentophone and others. Rather than achieving
market consolidation and growth, shareholder's investments were squandered.
The Elemec and Instrument
Associates acquisitions were successful from a revenue perspective.
Still, they are far from reaching their potential. Parent company, Salient
3's other acquisitions have also been less than stellar:
XEL Communications , TEC
- Expand International Markets
International sales drove much of GAI-Tronics growth during the 1990's and
management accurately recognized the growing importance of global markets.
After Don Borden replaced Jay Cunningham, there were significant improvements
in the quality of the international sales organization. Still, the old
international/domestic squabbles over commission splits divided the company.
The domestic organization did not share in the international vision.
European acquisitions had little effect on domestic product lines and there
was little visible evidence of technology or resource sharing.
GAI-Tronics owns foreign companies. It is still not an international
company. I regularly stated my desire for a transfer to
international during my whole tenure with GAI-Tronics. Frankly, being
passed over for an international opportunity was ultimately the reason I
left the company to pursue additional education.
- Develop New Products
GAI-Tronics' management realized the need for new products and new markets,
they simply didn't know their customers and did not truly embrace real
change. GAI-Tronics was notorious for testing the water by printing up cut-sheets
before product was actually available to sell. New products inspired by
the engineering department and lines from other manufacturers routinely
failed and were promptly discontinued. Change was forced down
GAI-Tronics throat by the Western Region Sales Team and my personal role was
significant. GAI-Tronics had traditionally sold their line of paging and intercom
equipment to high-noise industrial facilities where rugged and durable
equipment is required. Only a few of us understood how our systems
were or could be utilized during an emergency. My
manager, Bruce Wedgwood, encouraged us to learn about OSHA and NFPA.
Several of us became certified in fire alarm systems. We started
calling on safety and fire personnel, in addition to engineers and plant
managers. The pivotal point came when David Kruger sold a custom $1.6
million alarm system to Phillps Petroleum. With an order in hand,
GAI-Tronics was forced to develop a product customers wanted, although
Dave's commission was reduced substantially (The famous Kruger clause). The
result was Advance
and Smart Series.
A sales contest was announced and I promptly turned in two orders,
Weyerhaeuser and AES
Shady Point. GAI-Tronics is now in the industrial alarm
business. Nonetheless, change is still impeded and occasionally
thwarted by budget priorities and a pervasive
reluctance to change throughout the organization.
[ Ronnie's Home Page ] [ GAI-Tronics Awards ] [ GAI-Tronics' Partial Customer List ] [ My Criticism of GAI-Tronics Management's Competitive Strategy ] [ Letter of Resignation from GAI-Tronics ]
Copyright © Ronnie Oldham 1998. All rights reserved.
Revised: April 01, 2011.
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