Negotiating corporate change - simulation background case

Cast of Characters:

A. Paul Stokes– Head Health and Beauty Aids Division

B. Jack Morris- Head Food division
C. Helen Freeman – Head Small appliances division
D. David Carlson – Head MIS

The initiative:

Rosewell Corporation is a three-division conglomerate. While Rosewell’s gross sales recently crossed a
Billion Dollars, the earning per share and stock price took a dive last quarter. In CEO Bauers’ words, as
reported by Carlson, the board “went Ballistic” and grilled him on specifics of Rosewell’s cost structure
as well as on product level and other detailed profitability comparisons across the three divisions.
Bauers could not provide adequate answers. Angrily determined never to be humiliated by such
questions in future he met Carlson and gave him eight months – a frighteningly short time, to
implement a new integrated system that can provide him data for his problem of cutting costs
intelligently. He gave Carlson a further 16 months to “work out bugs” putting him in charge of
companywide task force.

If this initiative fails Bauers’ grim reaction will almost certainly sink Carlson’s career at Rosewell. And
whatever Carlson’s fate, Bauers would still have to rely on Rosewell’s decentralized and occasionally
incompatible information systems for data to cut costs.

The Company information:

Health and Beauty Aids (H&B) Division is the original unit of Rosewell with $660 MN sales last year
with $26 MN operating profit before corporate charges and transfer costs among divisions with sales
growth at 24% annually and profit growth of 1-2%. The division has new initiatives such as
manufacturing reengineering and distribution process underway to boost results.

Small Appliances registered $240 MN in net sales, $18 MN operating profit before corporate charges
and transfer costs among divisions with both sales and profit growth at 8-10%.

The Foods division is Rosewell’s newest unit acquired two years ago on the strength of its new product
and patent portfolio as well as its rapid growth potential. Foods had $100 MN in sales, operating profits
at $5MN before corporate charges and transfer costs among divisions with sales growth last year of
21% but flat profit growths. The distribution for Food division was managed by Health division.

Adapted by Satish Duryodhan from Negotiating Corporate Change-Prof. James K Sebenius HBS
The New task Force Bauers convened to provide data for his problem of cutting costs intelligently is
headed by David Carlson and include the three division heads of Rosewell:

Hellen Freeman- VP in charge of Small Appliances. She is brisk, professional and most open among
Rosewell’s senior management to the potential new technologies.

Paul Strokes- VP Health & Beauty (H&B). he is most senior of the three VP heads, the most cautious
and cost conscious, as well as seemingly most concerned with other’s acknowledgement of his
division’s primacy and status, especially relative to the Foods division, which Stokes seems to regard
as flashy upstart.

Jack Morris- VP of Foods division. He is sales-growth driven: Morris and and his key executives’
annual and long-term incentives or bonus compensations are tied most explicitly to rapid growth
in gross sales-an arrangement negotiated at the time of Rosewell’s acquisition of Foods. Morris and
Stokes are formally polite to each other, but Morris seems dismissive of H&B’s stogy profile and
slow growth. Morris felt that distribution impeded growth due to inadequately automation.

Carlson Joined Rosewell as Head MIS three years ago from a smaller Kitchen appliances competitor
with similar role. He has long advocated a uniform corporate wide information system. The last
quarter poor results have finally permitted him to push his pet “solution awaiting problem” with
Bauers. Carlos believes an integrated new system would permit Rosewell to get handle on its costs,
would allow comparability across products and divisions, permit sensible allocation of corporate
charges and facilitate cross divisional transfer pricing and other cost allocation-matters that have
been handled by a flexible internal negotiation process each year among the senior executives.
After Carlson’s dramatic meeting with Bauers, he called up a systems design and integration firm that
recently worked closely with Freeman’s division to install new information system in Small Appliances.
Freeman joined Carlson in urgent round the clock design and specification meetings with the consultant
to work out a scheme for the corporation as a whole. Carlson sent Paul and Morris technical mails
updating on progress and at the end expressing desire for their inputs. Both of them barely had time
to plough through the jargon on most of the occasions.

Case analysis question:

Think through following questions

1. What are the challenges at Rosewell Corporation and what does the CEO Bauers really want?
2. Which Division of Rosewell Corporation has largest sales for the last year
3. Which Division of Rosewell Corporation has largest profit % (profits as percentage of sales) for
the last year
4. What is Paul Strokes (Head H&B) most concerned with?
5. Morris and his key executives’ annual and long-term incentives or bonus compensations are tied
most explicitly to
6. Why Morris seems dismissive of H&B’s stodgy profile?

Adapted by Satish Duryodhan from Negotiating Corporate Change-Prof. James K Sebenius HBS