An American parable.HotShot Inc. is closed. Too bad. In their glory days HotShot had $200 million in sales, great margins and terrific prospects for the future. The only evidence remaining of the company’s existence are a few lawsuits yet to be settled.
In the early 90’s, HotShot brought an interesting new product to market. Sales boomed and the company suffered from the usual growing pains. In spite of the expansion from a handful of dedicated employees to a workforce of over 400, the company culture remained true to the founding principles of producing a quality product, taking very good care of their customers and continuing to innovate. HotShot took good care of their employees though they weren’t known as the highest payers in their industry. The benefits were good and the company treated their people like family.
HotShot was noticed. They were treated favorably by the media. Their latest product line received great reviews. Competitors noticed too. When WongTech introduced a competing product priced 20% lower than HotShot’s flagship item, things started to go wrong.
To protect market share, HotShot cut prices by 25%. To be accurate, they didn’t immediately cut prices. Instead, they introduced a host of rebate programs. Then they increased the company’s advertising exposure so people would know about the 10%, then 15%, then 20% savings. The response was good at first. HotShot still had a good brand reputation and customers were excited about the savings. But new customers weren’t that enamored with HotShot and particularly didn’t want to wait 6-8 weeks for a rebate check. Those people bought from WongTech. Eventually, HotShot’s management decided it was best to face the reality of declining sales and to cut prices.
That’s when HotShot experienced its first money-losing quarter. Management was surprised at the loss but attributed it to a softening of demand. The following quarter was worse and bit deep into the company’s cash reserves. Management had to act fast or the remaining cash would be gone within 90 days at the current burn rate.
For the first time in HotShot’s history, they let workers go. It was a painful move that harmed morale but reduced the rate of cash consumption. In the third quarter, the sales dropped at a much faster pace. HotShot secured a credit line to restructure the company. It was time to face the reality of a changing market.
HotShot closed most of their domestic manufacturing operations and set up shop “overseas”. We all know overseas means China. The move saved a lot of money. HotShot was able to let more employees go. They were now competing on the same footing as WongTech so things were sure to improve.
Quality issues popped up. The customer service department was flooded with complaints about faulty products. They couldn’t keep up with the torrent of customer issues and service suffered. Sales continued to drop. The margins gained by the overseas move were off-set by the quality issues and problems associated with losing direct control over manufacturing. It was easier when the factory was down the street. Management insisted that if given more time things would get better. After all, this was a big brave move and it takes time to get a foreign operation on a solid footing. Soon, HotShot would once again introduce products the market wanted and return value to its stakeholders. There was more cost cutting.
Progress on the quality issue was slow. Too slow. HotShot was in trouble. Managers who had been with the company for years, quit. The replacement team of “new thinkers” immediately went to work on solutions to HotShot’s problems. The new management team knew that a problem cannot be fixed unless it can be measured. So they set up measurements for everything. They measured calls per hour to the service center and demanded employees handle calls faster. Soon, the hold times went from 2 hours to 30 minutes. Instead of 5 calls per hour, the service reps were handling 10. The management at HotShot was pleased with the progress. That, after all, is a 100% improvement in service.
The sales decline finally bottomed out. The loss for the quarter was no worse than the previous quarter. Managers congratulated each other. If they could cut cost to match the latest loss, they’d be back in the black. A few more employees were let go. Some quit. Management took a pay increase in anticipation of the turn around.
One day, soon after the most recent “head reduction”, someone smelled smoke coming from the basement. Management assembled to discuss the odor. They decided to “stay the course” because no one could actually see smoke.
An hour later smoke was rising up through the ventilation system. Management met again. They decided to measure the temperature at various points in the remaining offices. Sure enough, over the next hour a rise temperature was noted. The CEO ordered everyone to open a window. That was brilliant because the data showed the temperature immediately decreased when the windows were opened.
But after another hour the temperature again was rising. Flames were seen in the stairwell leading to the basement. The CEO decided it was time to get another point of view so he called 911. The fire department rushed to the scene and upon arrival ordered HotShot headquarters evacuated. The CEO demanded the fire be immediately extinguished. But it was too late. The fire department was only able to contain the fire from spreading to other businesses in the immediate vicinity.
HotShot was finished.
Today, WongTech is doing well in spite of 3 new competitors entering their market.
In the distance, smoke could be seen rising from yet another American business.
Chris Reich, Author of TeachU’s Business Talk Blog