CASE STUDY: MANAGEMENT BY COMMITTEE

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The Fremont Group works extensively with franchise owners.  In a recent engagement they encountered a franchisee who, despite being in the franchise’s top quarter of producers, had been losing money for the past year.  The initial assessment showed that morale among employees was very low; theft had occurred but not acted upon; their volume had significantly fallen off after their purchase one year prior; and three of the four owners had very little confidence in the fourth who handled the daily operations.

The Fremont Group immediately implemented actions to improve morale and terminate the employee who had been stealing.  Communications were significantly improved and employees were given a daily “focus point” for their work.  A monthly meeting was implemented to reward good performance and to obtain their “buy in” to improvement.  The managing partner was evaluated and found to be competent but not a strong “leader” in part because of his age and also due to the family situation that he faced on his board.  The company had no real concept of how their financial statements worked so sessions were done to teach them what they mean and to create key profit variables that they would track in a flash report.  This was implemented but two larger problems emerged: (1) the four owners were all family members and had a very difficult time putting aside their “baggage”; and (2) the accounting upon which the flash reports were based was extremely inaccurate.

Counseling the owners improved their ability to function.  They communicated better and were able to put aside some of the family issues.  Unfortunately, the partner responsible for accounting (also the daughter of one owner, sister of another, and sister-in-law of the managing partner), simply was not capable of producing accurate statements.  Both the managing partner and the accounting partner were being paid in excess of what the company could pay to have their services performed by third-parties—but this was in part why the four of them bought the business to begin with!

Recommendation:  Significantly cut the hours of the managing partner, pay him hourly, and have him complete the essential functions that the current employees could not perform.  Terminate the services of the accounting partner and contract for them at market.  These actions will reduce the overhead of the company to a level where profitability can be achieved.  All four partners must then cooperate to implement a marketing plan.

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June Case Study

FACTS

A second-generation business in flooring and carpet was doing quite well. They grew to a sales volume of about $20 million per year with nearly 100 employees. The brothers who operated the company are approaching retirement age, have received a good salary and have done well themselves. The company has a great reputation and very high market share—particularly in residential new construction. Unfortunately they are located in an area that has been hit extremely hard by the recession. New construction has come to a halt. Builders are not paying. Accounts receivable have skyrocketed and their volume is half what it was the year before. They have taken steps in laying people off and trying to control costs but it seems that whatever they do it isn’t enough. They expect things to turn around but it could take another year or two.

Post in the comments the recommendations that you would make for immediate, short and long-term actions.

Note—all case studies are fictional and any resemblance to an existing business is coincidence.

Case Studies Begin in June!

Beginning in June each month we will have a case study for you comments.  A set of facts will be posted and each of you can comment on what you believe to be the best course of action for the fictional owner.  There is no right or wrong and you will have to add your own facts at times to justify your responses.  The point is to create a dialog of comments on various topics.  We plan to give an award to the recommendation that is deemed the most useful.  Keep checking back for more information!