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Scott had studied Xcorp's financial statements.He knew that the company's profitability was dismal and worsening.Yet he was aware that the financial statements could not tell him the whole story.He suspected there were several factors to blame.To discover the real story behind the numbers, he decided to meet with the chief financial officer (CFO) of the corporation and get his opinion on the problem.
When he arrived at his office, Scott greeted his secretary, Joanne Evens, and asked her to call in the CFO, Joe Rayner.
A few minutes later, a gray-haired gentleman in his sixties walked into Scott's office.
Scott greeted Rayner as the two men sat down."Why do you think Xcorp is in trouble?" asked Scott
"I blame our lackluster performance on your predecessor,' replied Rayner."He expanded too quickly and diversified in too many areas.This forced us to o to the financial markets to raise capital at a time when the cost of money was high and the company's credit standing was deteriorating.
"I think the high cost of financing, along with a lack of expertise in the new areas we were moving into, led us to a situation where we were not competitive in meeting customer needs," stated Rayner.
The CFO's assessment came close to Scott's own view.Yet Scott was uneasy to hear the chief financial officer of the corporation putting the blame for financial problems on a person who was not there to defend his position.He thanked the CFO as he showed him out of his office.
The CFO's assessment may well have been correct, and Scott certainly knew how to begin to handle this type of situation - by zeroing in on profitability by product/service line and eliminating those lines that werenot likely to contribute to the overall corporate bottom line. But he wanted to know more about why Xcorp had expanded into so many new areas, and why so many products were not successful.
Scott told his secretary that he wanted to see the vice president of manufacturing.
Ten minutes later Tom Brown, a middle-aged man, was in the reception area waiting to go into Scott's office.He had been one of the key people on the old management team who was close to Scott's predecessor.
Brown knew that many Xcorp products were not doing well in the market.He also knew that many people were blaming his area.He was nervous and apprehensive as he walked into Scott's office and met the new CEO.He sat quietly waiting for Scott to begin the conversation.
"Tell me," asked the new CEO, "what is the real problem here at Xcorp?"
Brown felt threatened and became tense at the question.
"I inherited a lot of problems when I took over as vice president of manufacturing.Since then our situation has become much better.The real problem is in the sales department.Sales are down and erratic.That causes is to keep adjusting our production schedule on short notice.The sales, men promise delivery without checking with is, and they don't get all the information we need to schedule production until the last minute.With the current situation it is impossible to have meaningful production planningAnd with poor production planning, we can't keep the machines fully occupied.That is why we have excessive downtime."
Scott heard what Brown was saying, but could not understand why the manufacturing and sales departments had not worked together to solve this problem.He thanked Brown as he led him to the door, and then he called in the vice president of sales.
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