Internal and External Analysis of M-TRONICS
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M-TRONICS was founded during the consolidation of small local machine shops in the early 1900s. From early 1900s to 1999, M-TRONICS has struggled and faced with many operating and personnel problems within its organization. One of the positive aspects of this company is EBIT Margin. According to the EBIT Ratio, M-TRONICS has done very well in the last decade (90-99). At present it has a bright future. M-TRONICS has to consider every alternative they have in order to make sure that their organization is able to continue with its growth strategy. The alternative that is mentioned below for M-TRONICS will allow them to solve the issues that are being restricted in the organization's growth strategy. After analyzing the main issues and the internal and external factors, the best alternative for M-TRONICS is to realign the organization so they can think closely about on one strategy and one focus. This case analysis will recognize the issues that are being faced by M-TRONICS, an analysis of the external and internal factors, and to provide the most feasible solution for the organization.
M-TRONICS must evaluate the different options they have that would allow their company to grow within their competitive industries. The key issues and questions that needs to be addressed in this case analysis are:
1. Should the Entrepreneurial Subsidiaries be a key part of M-TRONICS' growth strategy?
The Entrepreneurial Subsidiaries at M-TRONICS is causing a money drain as large amount of the company's budget is going towards the subsidiaries instead of their two major divisions (Electronics and Machinery Division).
2. Should changes be made within the organizational structure and strategy?
The structure and strategy at M-TRONICS are different in each division. As each division has operated in different manner, it has resulted in conflict of culture, structure, and strategy of the overall organization.
M-TRONICS has been faced with an increase in turnover over the past few years. The increase is due to employees being unsatisfied with how the organization is operating.
External Analysis (page 7 )
There are two industries in consideration have vastly different characteristics. The industrial machinery industry is characterized by its inactive nature. Success in this industry relies more on quality and a strong sales force rather than on innovation. As it is a slow growth industry, being a market leader is not necessarily dependant on having a first-mover advantage. The market is in a mature phase; therefore, factors like cost, quality, and reputation are important for survival.
The electronics industry is contrary to the machinery industry. The electronics industry is constantly growing and evolving. It is characterized by innovation and development, and longevity is dependant on an evolving product line. Research and technology are the cornerstones of the industry and being a pioneer is essential to success.
Other industries are involved depending on which industry a subsidiary is created in. These industries generally have synergy with the two above and are also reliant on development.
M-TRONICS structure has made its culture highly reflective of its history. By keeping the electronics and manufacturing divisions separate, each was able to retain the characteristics and management of Datronics and McKenna Machine Company respectively. Before acquiring Datronics to form M-TRONICS, McKenna Machine Company was a leader in industrial machinery. Datronics was a highly innovative fledgling engineering company focused on high-tech developments. The two together formed a comprehensive manufacturing company with an emphasis on stability in the manufacturing division and development in the electronics division. Sales following the acquisition increased from $600 million to over $2 billion and gross profits grew from $12 million to $104.3 million. Henry McKenna, who had little involvement with the actual operations of the company, but was acting more as a figurehead until his retirement, oversaw the two divisions.
The manufacturing division is essentially the McKenna Machine Company component of the company, who is led under the same leadership of George McElroy. McElroy was an essential part of the company's success and was extremely involved with the company. McElroy's division is driven by performance and stability, reflecting the stagnancy of the industry and the division. Compensation reflected this, as its basis was only 10% based on return on investments and a lower use of incentives.
Datronics founder John Martell led the electronics division, effectively what the Datronics component comprised. Martell's style was entrepreneurial, and he believed in fostering innovation and a creative atmosphere. The division was constantly growing and searching for new enterprises to engage in. This dynamic style of leadership is what led to Martell's appointment as McKenna's successor as president and CEO of M-TRONICS.
Martell's appointment as president brought several wide sweeping changes as he infused his entrepreneurial spirit and open culture throughout the organization. This was to help develop into new high growth markets, while retaining their current customer base. One of Martell's biggest implementations was the Entrepreneurial Subsidiary approach.
The Entrepreneurial Subsidiary program was to hedge risks while capitalizing on new investments and retaining talent within the company. The program gave M-TRONICS 80% ownership of the new subsidiary formed by M-TRONICS employees and otherwise staffed by new talent. Depending on the success of the subsidiary, it would eventually amalgamate into the company. The program was designed to entice employees to develop breakthrough concepts without losing out on the benefits of the innovation or the loss of talented employees. Employees were able to expand their ideas in independent ventures with the security and support of M-TRONICS backing them while also making potential substantial gains.
Martell's changes to the company were very effective in promoting growth and development. However, these changes began to have trouble integrating into the company and dissatisfaction with employees began to rise. Martell's appointment of Grennan as the new leader of the Electronics division was creating some dissension as his alliances from his subsidiary were causing some dissension. Another issue was that the focus on electronic development had left the manufacturing division behind their competitors and as a result their top-rated sales force was beginning to leave. Costs were rising considerably in the electronics division with some products obsolescing before they reached their break-even mark. The successes of the subsidiaries were now showing weaknesses as loyalties were forming cliques within the company and as returning employees felt dissatisfied in their roles back in the company. Meanwhile, the manufacturing division required an investment of $200 million to $250 million to update their facilities and product line to keep up with the industry.
The alternative that we ranked number one is that of realignment. We chose this alternative because we feel that it would bring the company back to one strategy and one focus. This would enable the company to reduce the money drain of the Entrepreneurial Subsidiaries, reduce the talent loss, and allow for investment in both the machinery and electronics divisions.
In order to realign the company, the first step would be to eliminate any future subsidiaries and bring any existing subsidiaries that are profitable into the company under the electronics division. This would stop the losses and loans to those companies, as well as bring back the talent that left to manage those companies. This would leave M-TRONICS two divisions, which could then be managed with one strategy.
Under a single strategy both units would have the same, or very similar, compensation packages and rewards. This would create an environment for all to flourish while retaining and attracting talent, while also increasing morale. It would also create an innovative company, which could return to the high profits while being a leader in the industry. It would also ensure that both divisions would be managed under the same management style, which is not the case at the moment.
Eliminating the Entrepreneurial Subsidiaries
The second alternative that M-TRONICS can consider is to eliminate the Entrepreneurial Subsidiaries. M-TRONICS is better off eliminating the Entrepreneurial Subsidiaries because it has been a money drain on the company. By eliminating the subsidiaries, it would be beneficial to M-TRONICS, as it would enable them to invest more money towards the Electronics and Machinery Divisions. With the savings in cost, it would allow M-TRONICS to directly invest more money into the R&D departments of the Electronics and Machinery Divisions. It would enable the divisions to enhance and improve existing products as well as developing new products. Also by eliminating the Entrepreneurial Subsidiaries, it would reduce the tension within the organization between the employees from the different departments within the divisions. In doing so, it would eliminate the conflicts in the divisions and improve the productivity of the organization.
The last alternative that M-TRONICS could adopt is to flatten the organizational structure of the company. Warring factions were developed in many of the organization departments, particularly in the R&D department and between research and other departments (for example, marketing and manufacturing). The conflicts led to poor decisions, lack of cooperation, and wasted energy, which could have limited the future growth of M-TRONICS. It is necessary to make changes to the organizational structure. The result of the changes could benefit the organization just by using resource more efficiently. They could join the two divisions' research and development department together, which could help Machinery Division improve their product quality by using Electronics Division's resources. They can also join other similar function departments, such as marketing departments. Machinery Division have too many salespeople, they could use joint sales force to sale both division's products. This could result in a reduced total sales force. For Electronics Division, they could also join their sub research departments and division research departments together in order to save research costs and increase development speed.
It is time for M-TRONICS to rethink their strategy and approach. This will require a realignment of the existing strategy with an increased focus on current profitable subsidiaries and talent retention rather than future subsidiaries. Initially all ideas for future subsidiaries and interests will be put aside and a thorough re-assessment of existing profitable subsidiaries will be conducted. In order to determine if the current approach, they are using needs to be modified or changed in any way.
By using a single strategy to manage both departments, a new compensation and reward's package will be introduced to both departments. This new reward system will be implemented immediately with increased focus on boosting worker morale, giving workers more empowerment then before, and an improved rewards system. A similar management style will be introduced to both departments as well, which will make organizational practices in both departments more consistent with each other. With increased rewards, career growth opportunities and higher levels of recognition by upper management, these "wild ducks" will not only get the opportunities to challenge themselves in a competitive work environment, but also grow as talented individuals. This new rewards system will insure that current talent is retained and new talent is attracted.
If strategies for profitable subsidiaries are modified then there will be a 6-month test period for their new strategies. Afterwards, performance will be evaluated against pre-set benchmarks regarding revenues and operating margins along with potential growth opportunities. At the moment, there will be a shift of focus from future subsidiaries, as they will not be considered for some time in order to reduce current financial strains. Focus will be reduced mainly to existing profitable subsidiaries, which will come under the electronics division, and the machinery division.
The main area of focus in the machinery division will be employee motivation and product quality. The main aim will be to reduce turnover and bring back the motivation that the employees had, especially in the sales force. However, one of the reasons why the sales force was losing its motivation was due to inferior quality products that were being produced. This new strategy will cause a shift of focus in the organization and reduce financial strain. It will allow M-TRONICS to invest more in the machinery department in order to bring back the quality that M-TRONICS have been known for.
With improved product quality, more standardized management practices throughout the organization, improved rewards and bonus systems, increased worker empowerment and morale, and a new approach, M-TRONICS will be on its way to once again becoming the market leader it was before.
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