Reference no: EM133140782

History

In 1970, Dan and Real Seguin started NorOnt Limited. This northern Ontario based company manufactures and distributes various lines of prepared food products for the Canadian market from a number of plants, with the head office located in Sudbury, Ontario. Dan was just 23 years old at the time and Real was 21. In the first year of operations the sales volume for NorOnt Limited was $279,000. By 2000 NorOnt Limited had 6 operating plants across Canada. They had also expanded to the western U.S. market and had three plants in Europe. NorOnt Export Division was responsible for exporting product to Japan and China. In 2000, the total sales volume of the Company was over 6 billion dollars (Canadian). The company was a Canadian business success story, both at home and abroad. In addition to the spectacular volume increases, the company was very well managed financially. It had no reason to go public to raise capital as it financed all its expansion through earnings.

There were several reasons for the company's exponential growth. First and foremost, the brothers valued hard work. They each worked ten to twelve hours per day, even in the latter stages of their careers. Consequently, their senior and middle management group worked similar hours. Secondly, each brother was a skilled salesman in the traditional sense. Their handshake was their bond. Thirdly, they had tremendous 'cultural sensitivity'. Whenever they expanded to foreign markets they recruited a local executive to be CEO at that location so that the local culture was respected and integrated to business practices (fostered). They assigned a Canadian executive to be VP Finance so that financial reporting was consistent across all company operations.

The brothers were proud of the exponential growth of the company and were particularly proud of their Canadian roots. This pride and work ethic permeated through the organization from top management to the line employees in the plants. The success of this Canadian organization attracted executive and management talent from across Canada.

Setting them apart from their competitors was the speed with which strategic decisions were made and the flexibility by which these strategies could be implemented. Strategic decisions were made only by the brothers. From the vice-presidential level down, all operational choices made were in support of the implementation of the plans developed by the brothers. Employees from coast-to-coast were extremely proud that the Company could go from conception of a new product idea to launch of the product in the marketplace in a matter of weeks. Similar decisions made by their competitors could take months or even years.

The brothers controlled as many elements of the food supply business as they could. For example, they ensured that the plants always had an adequate supply of ingredients on hand for production. They also formed their own trucking firm, National Distribution Limited (NDL), a wholly owned subsidiary of NorOnt Limited. In this way, they could guarantee on-time deliveries to customers. More than 70% of the demand for the trucking firm came directly from food business deliveries, independently operated out of North Bay, Ontario.

Threats to the Business

Today the Seguin's know that regardless of the success their company has enjoyed over the years and their attempts to control aspects of the business, it faces significant threats to profits daily.

General Canadian Economic Conditions

Over the last fifteen years, the Canadian economy has seen a major deterioration in its manufacturing base which in turn has increased unemployment and depressed real wages. So, even though inflation hasn't been a huge factor in the equation, it has risen at a level greater than general wage increases. One could argue that this should have little impact on the food business as 'food is food and everyone has to eat', but consumers have become increasingly more price and health conscious. In terms of the percentage of overall family budget devoted to food acquisition, the average family spends less now than it did ten years ago. The trend to shopping at big box wholesale or discount stores such as Costco and Walmart, or the popularity of generic brands at Sobeys or Food Basics, impact the profitability of brand name products competing for the same market.

Competition

Significant competition exists in Canada from major companies with similar product lines. In the juice business for example NorOnt would compete with Coca-Cola through its Minute Maid Division. There are several other American firms that have penetrated the Canadian market attempting to decrease NorOnt market share. Some of the U.S. competition is dependent on the value of the Canadian dollar. Competition has also stiffened overseas, particularly in Europe. Early on NorOnt was often first to market with their products in many European countries, but as the market matured, local companies saw the success of prepared foods, gauged the opportunity and began to compete directly with NorOnt products.

Pricing

The Canadian market for food producers is split into two avenues: retail sales, selling the product through major grocery chain stores such as Loblaws; and food service sales, such as McDonald's, Jack Astor's, or Tim Hortons. On the retail side, major grocery chains have developed their own "housebrands" to compete on price against NorOnt products in many of their food lines. On the food service side, NorOnt is only able to maintain the business primarily on "best price" so that over time, regardless of volume increases, profit margins tend to decrease.

Consumer Preference

In the early years, NorOnt products were extremely popular, solely based on the convenience of prepared food. Recently however, consumers are being more discerning about purchasing convenience foods, paying close attention to such health concerns as trans fats, unsaturated fats, salt, and sugars. NorOnt desserts have suffered. In Quebec, the market has always been softer than other markets in Canada, and continues to deteriorate because of the preference for 'home cooking'.

Transportation

NDL, (the wholly owned subsidiary of NorOnt Limited) transports raw product to its plants for manufacture and inventory to its customers to market. However, the global cost increases in petroleum products have been significant and with the need to keep product prices low, transportation cost is a major area of concern for the company.

Recruitment

NorOnt has been an attractive company for Canadian executives, managers and plant personnel to seek employment because of its Canadian roots, culture and success. However, they have had significant issues recruiting in the Vancouver and Toronto markets in recent years since the cost of living in those markets far exceeds real income.

Unionization

Most of NorOnt Canadian operations are non-union and for competitive reasons the brothers tend to prefer it that way. They have always felt that any issues with an employee could and should be dealt with directly, on a one-to-one basis. The brothers believe they need to operate with flexibility to make quick strategic decisions, to develop a new product idea, and take it to launch as quickly as they do. Labour agreements can add a level of structure and time consuming protocol that creates a less flexible operational environment.

The Current Situation

You are brought in to the organization as Director of Human Resources for the Canadian operations. The Company has manager-level HR representation in each plant in Canada, but no one coordinates the overall effort. Your job, as described, is to develop and implement HR policies so that the company can apply them consistently throughout the Canadian organization. Subsequently, you will introduce policy to international operations, ensuring that where currently the company has non-union status, it is maintained. In that capacity, you report to Monique Labelle, Vice President of Operations, Canada. You work from the corporate offices in Sudbury.

You discover several HR issues that need to be addressed. Executives and managers are hired at starting salaries that were set primarily by their ability to negotiate their own salary rather than on any specific salary range criteria. No policies regarding employment equity or pay equity exist. The company has no job description, nor any job evaluation processes in place. Performance appraisals are nonexistent below senior management, and even at that level, appraisals are informal and totally based on a Management By Objectives style of management. Bottom line results are paramount regardless of the behaviours exhibited by the executives and managers to get those results.

There are no bonuses in the organization except for the sales and marketing staff and they are paid solely on sales target achievement and market share improvement. Succession management has not been considered. Historically, if a brother determined a vacancy he would offer that position, based only on an employee's ability to implement a strategic objective. Often that judgment was based on a fleeting impression. Even the brothers themselves have no plan with respect to who will replace them should they retire.

Along with the pride of working for the company there is also a pervasive fear. At the head office and plants in Sudbury for example, employees are very afraid of losing their jobs as NorOnt Limited is the one major employer in the area (aside from the mining industry, which has been scaling back over the last five years). Since there are no consistent policies on any employee relations issues; any employee at any level could be terminated at any time if he or she fell out of favour with the owners.

The brothers attend two noteworthy team meetings. The team that includes the CEO's from all the European and Asian subsidiaries meets once every three months at the corporate office in Sudbury. The purpose of this team meeting is to discuss and improve profit results. The brothers also meet once a month with the senior executive team in Canada including the VP Sales-Retail, the VP Sales-Food Service, the Executive VP Marketing, the VP Engineering, the VP Finance and the VP Operations. No other formal team meetings are held in the company. There are groups that meet on an ad-hoc basis to manage new product implementation; these employees come from Sales, Marketing, Finance and Operations.

As the newly appointed Director of Human Resources for NorOnt Limited, you recognize that there is substantial work ahead. You know that while changes are required, you are very aware that the company has been a huge success. How will you help move the company forward? Dan, Real and the other members of the executive team will have projects and assignments for you to do in the near term. You will gain knowledge and experience as you offer your leadership in the field of Human Resources Management.

Question:

Recently a major transportation company in Canada approached NorOnt and indicated that they could provide all the organization's transportation needs between plants and to customers for a thirty percent decrease in their transportation costs. To this point in its history NorOnt had managed transportation internally and this outsourcing opportunity looks like a great deal. Is it? The VP Finance, Dean Ellerton has asked you to look into it. Explain in detail the implications of NorOnt proceeding with this outsourcing decision.