The case is based upon the acquisition of a rubber and urethane manufacturing company named as Elasto Therm Inc (ETI) by Nate Burstein and Julia Burstein. Nate and Julia Burstein had a business idea of bringing effective changes in ETI to make it productive. They believed that employees play the most vital role in an organization and if the company is able to satisfy them, they shall become more productive that will ultimately increase the customer satisfaction. They considered the employees to be the most important part of an organization, the customers as the second most important part of an organization and the owners as the third most important part of an organization (Stindt and Sahamie 2014).
Nate and Julia Burstein have the knowledge of manufacturing and they had an undergraduate engineering degree along with an MBA degree. Both of them had decided to own a company rather than becoming a salaried person and working for some other organization. After several researches, the couple had found business opportunity in ETI and had acquired it in the year 2001. ETI was previously owned by a 74 year old man who cared for the company along with its employees and customers. ETI was found to be a clean and profitable business with $8 million sales. The company had good relations with its employees, customers, suppliers and banks. Nate and Julia Burstein acquired ETI at the price of $6 million and an additional price of $1.2 million for plant building and nine acres of land. They implemented an Employee Stock Ownership Plan (ESOP) wherein they received only 63% of the shares of the company while the employees held the remaining shares of the company (Wilcox, Van Sebille and Hardesty 2015).
During the early years, Julia became the CEO of the company and Nate was the vice- president. During this time, Nate actively participated in the day-to-day business activities while Julia remained away from the business for taking care of her children. In the meanwhile, Nate developed good relationships with the employees of the organization and gained complete knowledge of the business (Collett 2015). However, after three years, there was a major change in the leadership as Julia wanted to return and take active participation in the business. They decided to reverse their role as Julia came forward to manage the company while Nate stayed at home to take care of his children and the house. This change in the role created confusions as they both consulted each other regarding their day-to-day activities. Julia emphasized more upon the engineering and production aspect while ignored the sales, which was earlier the major focus of Nate. Julia took the position of the plant manager by terminating the previous plant manager.
Julia emphasized upon refocusing engineering group in order to improve the client service. She emphasized upon improving the technical capabilities of ETI to be ahead of the competitors. She made several changes within the organization by employing skilled labor who possessed some educational degree. She focused upon zero defects production by ETI. Julia handled the business for a period of two years and the company became a more professional organization. However, later on they decided to share their jobs that led to a drastic cultural change at ETI. This was the time when the employees began to complain rather than mutually discussing upon the issues. The job-sharing lasted for two years till the recession began in the year 2008.
In the year 2008, ETI saw a major decline in the sales as a result of recession. The owners decided to cut off the expenses by laying off the staff (Dick 2014). They fired fifteen employees for cutting their expenses. They also decided to build up a new building in order to separate the production of rubber and urethane. ETI also began sourcing its products internationally for its clients.
In the year 2012, ETI was awarded for its employee satisfaction. The company sold its products with the help of manufacturing representatives, who were the individual sales agents and were provided with commissions on sales (How 2015). The company was able to double its size within ten years and had a steady growth. However, after achieving several milestones, Nate and Julia were in a dilemma to further acquire businesses or to extract additional profits from the existing market. In case of acquisition, the ESOP structure followed by them could be of a huge risk while in case of extracting profits from the existing business could be of less risk but might render lesser profits.
The problem is what should be the next step of ETI that is whether ETI must acquire other businesses to gain profits or it must extract additional profits from the existing market in order to minimize the associated risks.
The researcher has aimed in this research to address the issue of the owner of ETI to choose between acquiring a new business and extracting profits from the existing market. The basic purpose of this research is to find out the best suitable method for improving the profitability of ETI.
Nate and Julie have been successful in turning their dream of owning their own company into a reality by acquiring ETI. Nate and Julia Burstein had the knowledge of manufacturing and they had an undergraduate engineering degree along with an MBA degree. Both of them had decided to own a company rather than becoming a salaried person and working for some other organization. After several researches, the couple had found business opportunity in ETI and had acquired it in the year 2001. They have been successful in creating a company wherein the employees are satisfied with their job role and the company has a strong financial condition. The couple has been working hard to make ETI successful and after many years of success, the couple wants to generate more profits but is in a dilemma whether to acquire another business or to extract profits from the existing niche (Galloway 2017).
The company has been successful since the year 2001 and had managed to double its size within the year 2012. In the early years, Nate actively participated in the day-to-day business activities while Julia remained away from the business for taking care of her children. This was the time when Nate developed good relationships with the employees of the organization and gained complete knowledge of the business. However, after a few years, there was a major change in the leadership structure of the company as Julia returned and took active participation in the business (Dubey, Bag and Ali 2014). This change in the role created confusions for some time as they both consulted each other regarding their day-to-day activities. Julia emphasized more upon the engineering and production aspect while ignored the sales, which was earlier the major focus of Nate. A clear difference in the leadership style was witnessed between the two. Julia was more comfortable in technical and production related activities while Nate was an excellent salesperson.
The company has been able to distinguish itself from the competitors by focusing upon engineering group that helped in enhancing the customer service. The company has also decreased its number of defective products to a large extent and the company has flourished throughout the years (Dick 2014). The company was able to recover itself from the adverse conditions of recessions in the year 2008. The company has been able to find the appropriate manufacturers by sourcing its products internationally. The company has efficiently utilized manufacturing representatives to increase the profits. The pricing strategy of ETI has played a vital role in the success of the company. The company sold rubber and urethane products in both low and mid volume quantities. The company emphasized upon quality, timely delivery and feedback that helped the company to become unique in its own nature. However, now the company has reached its maturity level and the owners want to gain more profits from the business either by acquiring a new business or by extracting profits from the existing business (Galloway 2017).
In case of extracting profits from the existing market and to obtain further growth ETI could bring certain changes in the commission structure. The company can either lower the rate of commission or price higher volume quotes in order to increase the profit margin. This method would help in increasing the profits but would also upset the representatives. The company can also hire technical specialists especially in case of the urethane business as the urethane business was still not developed completely and there was an opportunity to further explore the business (Judd 2016). The rubber business had reached its maturity level but the urethane business still had the scope of development. The existing representatives of ETI are still not efficient enough to sell urethane products. Therefore, hiring specialists for selling urethane could help the company to expand its urethane business and generate additional revenues.
The company could also hire its own sales employees in order to capture those markets that have been left untouched by the representatives. This would ensure overall sales of urethane and would increase the profits considerably. The company could alternatively increase the number of sales representatives to increase the area in which they could sell their products. This would not only increase the sales but shall also enable the company to be free from paying fixed salaries to its sales employees. The representatives would get their commission only when they are able to sell the products of the company. This would enable the company to save costs and increase the profits (Cartwright and Cooper 2014).
The other way of achieving growth is acquiring another company. This company could be a company having the same production line such as a rubber company or a profitable company with different production line such as a plastic company. Nate and Julie believed that ETI needs to maintain its momentum in order to remain successful in the coming years. Therefore, they were left with the two choices that is either acquiring a business or extracting profits from the existing market. Acquiring another business involved several risks associated with it however, expanding the existing business involved lower risks (Collett 2015). They also knew that as their children were growing up and once they reach the high school age, they would not be able to concentrate much upon their business. Therefore, they were trying to find a solution to this situation.
According to Galloway (2017), merger is a blend of at least two organizations in which the benefits and liabilities of the offering firm(s) are consumed by the purchasing firm. Despite the fact that the purchasing firm might be an impressively unique association after the merger, it holds its unique personality. At the end of the day, in a merger one of the two existing organizations blends its character into another current organization. In other words, at least one existing organizations may frame another organization and unite their characteristics into another organization by exchanging their organizations and endeavors including every single other resource and liabilities to the new organization (hereinafter alluded to as the consolidated organization). The investors of the organization (or organizations, by and large) will have significant shareholding in the combined organization (Cartwright and Cooper 2014). They will be allocated shares in the consolidated organization in return for the offers held by them in the merging organization or organizations. By and large, it shall be done as per the offer trade proportion incorporated in the plan of merger as endorsed by all or the recommended greater part of the investors of the combining organization or organizations and the merged organization in their different general gatherings and authorized by the court (Bena and Li 2014).
According to Judd (2016), general rule in business say that a business either develops or dies. An organization on the development track will take away piece of the overall industry from rivals, produce or win stream of benefits and provide upgraded incentive to investors. Those organizations that do not develop or remain dormant are gulped by the monetarily stable organizations. Over the most recent five years, approx 92 percent of liquidity occasions acknowledged by mergers and rest 8 percent acquired liquidity by means of Initial Public Offering. Later influx of merger and movement has been seen since 21st century. This has been driven by macroeconomic recuperation and because of fast evolving innovation. Enormous volumes and number of mergers have records up the mid of 21st century in light of different reasons, to build profitability, cost cutting, operational effectiveness. Choices on merger and procurement bargains require a genuine concentration and consideration are to be paid when organizations undertake merger in light of the fact that it may influence the money related execution of the bidder firm (How 2015). Where such merger and acquisitions occur, the getting organization may not generally be in gainful positions; it impacts the liquidity, gainfulness, operational and administrative productivity status of the acquirer organizations. Organizations should seek after M&A's just on the off chance that it makes esteems. Merger and procurement winds up plainly productive if collaborations emerge in the types of operational, monetary cooperative energy and administrative cooperative energy. Plenitude of research studies demonstrate that the monetary execution has enhanced to awesome degree over the long haul after merger and acquisitions, additionally the stock cost increments after M&A' bargain. However, money related soundness of acquirer firm once in a while indicates same or better position, at times discovered purchaser firms engaged with M&A's experience a critical decline in the monetary strength and neglected to make riches to their investors (Schmidt 2015).
Source- (Collett, N., 2015)
Rivalry- The presence of a large number of firms apart from ELasto Therm in the market has given rise to intense rivalry among the business units. Other factor that leads to rivalry are the presence of a slow growth rate, low levels of product differentiation, high fixed costs are such examples. Slow growth rate causes the firms to fight amongst each other as the firms try to compete for the same resources and the same customers. The slow growth rate of the market will help the firms to increase their revenues and expand their market.
Threat of New Entrants- The threat of new entrants is one of the main challenges that the mentioned organization faces. Similar companies have been offering similar products at a lower price which is causing problems for the company. This needs to solved by producing high end components that is of a much better quality than the other products.
Threat of Substitutes- The entry of similar products in the markets leads to fierce competition as the companies vie for a small space within the market. The price elasticity of the original product is affected by the new substitute and thus it makes the organization vulnerable in losing customers. The threat of substitutes is by far the most important concern for the organization as it leads to the fall in market demand of the original products.
Bargaining Power of Buyers- The power of buyers is the particular impact that the customers have on a production industry. The presence of a strong buyer power creates a monophony situation in the market where there are many suppliers but the buyer amount is limited to one only. ELasto Therm faces such a complex situation in the market as the recent splurge in the industry has made it quite tough for its survival.
Bargaining Power of Suppliers- The mentioned engineering company maintains a proper buyer and supplier relationship between the industry and the firms. The present market conditions does not help the company as the suppliers are too much powerful and control the total buying and selling process. The control of the market by the sellers has made the organization vulnerable and reduced the profits of the business (Collett, N., 2015).
Collection of Sources
The researcher has collected the information using the primary as well as secondary sources. He has carried out a detailed survey to find out different such sources to make the research compact and flawless.
The collection of the primary methods involved the use of questionnaires, telephonic interviews with the different participants within the mentioned organization, direct observations as well as face to face interviews. Primary information helped the organization to find out the personal viewpoints of the employees .(Bena and Li 2014).
The researcher collected secondary data from the different business and economic journals of the organization as well as from quite a number of business magazines. Secondary information was also collected from the website of the mentioned organization. The researcher also took the help of some engineering journals to get an idea about the complex process by which rubber and urethane are mixed to form a different element.
Assessment of the Current Position
The management of ETI has decided to shift its focus on the engineering group to improve the customer satisfaction. Both Julia and Coyman believed that strengthening the engineering department of the organization will help them to improve the technical capabilities of the organization and manufacture quality products which are better than the other existing products in the market .(Bena and Li 2014). The company created a computer hub for implementing the entire technology which helped them to improve the customer satisfaction levels as the new system enabled the engineer to directly engage with the customer and the other people who are engaged in the production process of the high end product. The management also took the decision to improve the technical knowledge of the support staff and its employees (Collett, N., 2015). They appointed some technically sound people to the different important posts of the engineering department to integrate the new technology and gain a proper production. The present situation provides the company with ample growth opportunities in the coming days. As the company is engaged in maintaining a proper employee and customer relationship management it believes that achieving great things is just a matter of time. The company has been able to effectively tackle the global recession period of 2008 and thus they have a huge scope to improve their business proceedings. As mentioned earlier the company can start hiring technical specialists, change the commission structure, hire sales employees to manage the business effectively. The organization presently has been trying to acquire new business to expand itself. It has targeted the acquisition of a rubber company, Plastics Company to make sure that it creates new dimensions to the existing operations of the business.
Idea Generation and Alternative Solutions
Elasto Therma follows a three stage process to generate ideas and alternative solutions. The three stages are namely;
- Generation- The mentioned engineering company uses ideation to solve the different problems present within the industry. The company easily identifies the needs of the employees and customers by using such complex processes. The company puts into use the core competency principle where the company leverages upon the existing ideas of the company. ETI tries out new markets and technologies to make sure that the company can explore new markets with the existing products of its own. The surveys and other focus groups carried out by the company helps them to get an idea about the feedback of the customers.
- Selection- The mentioned company picks out the best ideas much before the start of the ideation process. A proper process begins with the use of different tags and levels to arrange the ideas into meaningful clusters.
- Implementation- The implementation process is the final step when the ideas are put into practical uses. The best ideas selected by the organization are selected for practical use which helps the organization to achieve huge success.
After the completition of the research the researcher has provided a number of different recommendations to help the company improves upon its backlogs. They are;
- The company must manage its resources in a proper and efficient manner to make sure that the resources do not get wasted.
- The company can also reduce its dependency on different types of exports and reduce the commission of the articles.
- The company can also clarify the products that are driven globally and the local products
- The company must adopt to the needs of the local market and the needs of the customers
- An added advantage of the company is the maintenance of a proper customer and employee relationship management which it must behold
- Last but not the least the company has to make sure that they maintain a proper timings for their products and manage them on a real time basis.
Limitations of the Study
The following research has lacked some serious resources that could have made the research a more compact one. The researcher could have provided a detailed analysis by adding some necessary tools and models to bring out new dimensions to the existing study. The research has also lacked some important secondary and primary sources which could have made the research more informatics. The limitations in the following study have somehow lowered the acceptance of the research. The researcher should have been more specific while completing the project.
Scope for Future Research
Though the research lacked some serious models and instructions the main topics of the research has been covered. The research has been done on a subject which has never been explored before. The future researchers can refer to the study of the following research and can complete their project by using the valuable information as provided here by the researcher.
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