CASE on PLANNING: The ADAMS CORPORATION I. Viewpoint.

Price Millman, the new President & Chief Executive Officer of the Adams Corporation [Adams] II. Statement of the Problem: Despite continuously increasing sales in the past 20 years, Adams net profit has continuously dropped during the same period. The new controlling owner group wants a new corporate design that will improve effectiveness. III. Objectives: To formulate and implement a new corporate design that will improve effectiveness of Adams Corporation. IV. Areas of Consideration: 1. Formed in 1848, Adams had long been identified as a family firm both in name and in operating philosophy. In 1950s, over 50% of the corporations shares were sold by various family groups to the wider public. In 1970, all branches of the family owned or influenced less than 1/5 th of the outstanding shares at Adams. 2. Adams led the industry in the development of unique production processed that produced quality product at a very low cost. Its strategy was to make a quality product, distribute it and sell it cheap. Competition was limited and production efficiency and raw material sources enabled it to outpace the industry in sales and profit. In the past 20 years, however, major competitors have outdistanced Adams in net profits and marketing techniques. 3. Adams was organized into 8 major divisions. Seven of these were regional sales divisions with responsibility for distribution and sales. Each sales division was governed by a corporate price list in the selling of company products, but each had some leeway to meet the local competitive price developments. Each sales division was also assigned a quota of salespeople it could hire and was given salary ranges within which these people could be employed. 4. A small central accounting office accumulated sales and expense information for each of the sales divisions on a quarterly basis and it prepared the overall company financial statements. Each sales division received, without commentary, a quarterly statement showing the number of cases processed and sold, sales revenue per case and local expenses per case. 5. Adams was #1 in terms of manufacturing and logistic efficiency. 6. Adams had a very conservative compensation program. Officers and salespeople were on a straight salary. Officers can expect a modest salary increase every two to three years, regardless of divisional performance or company profit position. An expense-reimbursement salary plan for salespeople resulted in compensation under industry averages.

V. Alternative Courses of Action 1. Reorganize the corporate structure to decentralize planning and accounting. Adams has a very centralized decision making process. Of the eight (8) divisions, seven are responsible only for distribution and sales. Manufacturing and accounting are taken care of by the central office, including the number and compensation of salespeople in the different divisions. Accounting data are made available by the central office on a quarterly basis, without any comments, which means that each division interprets for itself the data provided by accounting. This also means that in-between quarterly meetings at the central office, no data from accounting could be utilized by the sales divisions in making business decisions. This could mean that corrective actions could be made quarterly, not weekly or monthly. The manufacturing division also suffers from the same predicament. It is able to make adjustments to the annual plans only after quarterly meetings. All of these highlight the need for more frequent and timely information, which is made possible if the divisions are allowed to take active part in planning and troubleshooting. 2. Restructure compensation scheme to encourage high performance. One expense item that Adams needs to carefully look into is the salaries of its officers and salespeople. Increases regardless of divisional performance or company profit hardly inspire officers and salespersons to perform to the best of their ability. On the contrary, across-the-board salary increases, especially those that ignore differences in performance may even be counter-productive: non-performers are not encouraged to improve while the hard work and effort of performers are not incentivized. VI. Conclusion & Recommendation Continuing with its organizational philosophy is hardly an option for Adams. The decreasing profits despite increased sales clearly require corrective measures. The options provided above are hardly mutually exclusive. Both may be done at the same time. At least in the short term, however, one option has to be preferred over the other. I recommend that priority be given to reorganization and decentralization, i.e. Option 1. The organizational philosophy at Adams was clearly shaped by its orientation as a family corporation. Authority was centralized and loyalty was expected. However, the marketing landscape has changed. What used to make Adams profitable no longer holds true. Worse, its competitors are thriving while Adams continually suffers from decreasing profits. Studies have shown that salary increases do not necessarily lead to effective performance. But planning and improvisation are essential ingredients for business success. Unless Adams is able to effect structural changes that would allow it to immediately respond to changes in the market conditions, it will continue to suffer from the same predicament.