Reference no: EM133464772

Maple Leaf Shoes Ltd. A Strategic Management Exercise Maple Leaf Shoes Ltd. is a medium-sized manufacturer of leather and vinyl shoes located near Wilmington, Ontario. It began operations in 1969 and currently employs about 400 people in its Ontario plant and 380 others in offices and warehouses across Canada and internationally. HISTORY Maple Leaf was the brainchild of Mario Mansini, an Italian immigrant who left his native country to begin a new life in Canada in the late 1950s. After a couple of unsuccessful ventures (a stage show and a sailboat business), Mansini hit upon the idea of starting a shoe factory. "As long as people walk, they need shoes," he is said to have told the bank, which asked for a financial guarantee, given his past failures. Though not well educated (he dropped out of Grade 8), Mansini was an extravert and a flamboyant man who could impress and inspire others around him. In the end, his personality and optimism swayed the bank manager to extend a small loan for the new venture. With the bank loan and financial assistance from some friends and relatives, Mansini built a small plant near Wilmington-two floors of shoes and about a dozen temporary sheds where employees lived and slept. In 1969, the firm formally opened for business. What began as a small operation quickly grew into a regional and national operation. Despite his lack of education, Mansini was an astute businessman and he was also able to successfully recruit skilled workers. The folklore is that many of his erstwhile artist friends worked for practically no wages in his factory during the day and played music and rehearsed plays in the evenings. He had very close friendships with his employees, and many were willing to pitch in whenever he needed help. The firm quickly developed a reputation for quality footwear, especially shoes used for outdoor and sports purposes. Apart from a couple of major footwear firms in the United States, competition was virtually absent and the firm thrived. Mansini worked long hours to make Maple Leaf a success. He was a loyal citizen (the firm's original name was Quality Footware; Mansini changed it to Maple Leaf Shoes). He also employed a paternalistic management style. He knew most workers by name and always took the time to inquire about their welfare. No one but Maple Leaf workers lived in the area where the factory was located. Over time, the location where Maple Leaf operated became unofficially known as "Leaf Town," although the closest town was Wilmington. For most workers, their houses were close enough to work to enable them to walk home for lunch. There was a Maple Leaf Grocery Store, Maple Leaf Recreation Hall, Maple Leaf teams, Maple Leaf Drug Store and Dispensary, and Maple Leaf Club for the higher echelon of the workforce. There was even a Leaf Cinema and Leaf Pub. Virtually everything was available in Leaf Town; residents only had to travel to nearby Wilmington for schools and medical assistance. Consistent with his management style, Mansini had few organized procedures or systems in place. He noted: "If you lose touch with your men, you lose them. Systems come and go; people are more important." There were few formal procedures-each event was looked at for its unique features and responded to accordingly. Mansini often worked 15 to 18 hours a day-he was involved in most decisions including hiring of personnel, product planning, financing strategy, shoe design, and handling employee grievances. During his time, efforts were made by local and international unions to organize the workers; however, they were unsuccessful (in the most recent attempt, the union was able to get less than 10 percent of the workers to sign up). But Mansini's first love was music and arts. So, when a national conglomerate approached him with an offer to purchase a controlling share of Maple Leaf in the mid-1980s, he was only too willing to sell it. "I don't have any children to take over the firm," he said. (He died a bachelor soon after the sale of the company; a part of his estate was donated to Leaf Art Guild and Sports Team and the remainder was divided among his relatives and the Canadian Cancer Society.) "In any case, how long can a man spend his life looking at what is under the feet rather than what is above?" he mused. SINCE THE TAKEOVER The group that took over the firm modernized the manufacturing operations and attempted to extend its operations both nationally and internationally. During these efforts, it found that many of the company's past practices were archaic and inefficient. There was an attempt to improve efficiency and gross margin. New equipment was installed and several routine activities were automated or otherwise mechanized to reduce costs. While attempts were also made to update management practices, the firm was slow in this regard. Unfortunately, there was also above-average turnover in the top management team in the company in the initial years. Robert Clark, who was hired as the CEO of the firm, has now been with the firm for eight years and holds a significant share of the company stock apart from holding options. While Maple Leaf Shoes makes shoes of all kinds, descriptions, and sizes today, it specializes in the manufacture of women's and youth athletic shoes. The company's designers were successful in producing a product that was both stylish and yet comfortable to wear and durable. The firm's shoes, marketed under the brand names of Fluffy Puppy, Cariboo, and Madonna, were very popular among ladies in the 19-40 age group. Its Young Athlete brand, aimed at boys and girls in the 9-14 age group, was a market leader in the children's sports shoes market in British Columbia. Historically, the shoes produced by the firm were cheaper than those of its competitors. This price advantage was a critical aspect of the company's marketing strategy in the past. EMERGING CHALLENGES Recently, the company has faced a number of issues that require immediate attention by its management. First, the cost of production at Maple Leaf Shoes has been rising slowly but steadily. Labour costs currently account for over 45 percent of manufacturing costs and have been increasing rapidly. The productivity levels of the employees have not shown any increase in the preceding three years. If the present trend continues, the firm is likely to lose its price advantage over its competitors. Already, for two out of six popular brands sold by Maple Leaf Shoes, the prices for the firm's products are equal to or higher than its competition. This has stalled the firm's growth and profitability. Some financial details of the firm are shown in Table 1. Figure 1 shows the firm's stock price during the preceding five years. The market reaction to the firm's potential has not been very positive, as indicated by the overall decline of its share price from a high of $25 about five years ago. The market meltdown in 2002 further worsened this picture, pulling the share price down to about $11, from which it has not yet recovered to any significant extent. Second, over 60 percent of the company's staff are unionized. There are indications that remaining nonmanagerial staff are also about to be unionized. Management believes that this will reduce the already limited autonomy it possesses in hiring, terminating, and managing employees. Third, in the recent past, competition in the shoe industry has been intense. Over the years, trade barriers across countries have disappeared, which has meant that cheaper, high-quality shoes made in countries such as Korea, Taiwan, Singapore, India, and Mexico pose serious competition to the firm within and outside Canadian markets. Despite this, Maple Leaf Shoes has been able to perform fairly well in the export markets. Currently, over 15 percent of its production is exported-mainly to western parts of the United States and Europe (the corresponding figure five years back was a tiny 2 percent). While the company increased its U.S. sales after the Canada-U.S. Free Trade Agreement, it is somewhat apprehensive about the future. Robert Clark, president of Maple Leaf Shoes, commented: The market has changed dramatically in the last five years. The Asians and the Chinese are fast conquering the world footwear market. How can we compete with the Malaysians, Thais, and the Indians, who pay a fraction of the wages we pay here? In China, from where most of the shoes sold in North America originate, the labour is cheap and employment standards are low. And mind you, those Asian workers are good. It will be a totally new game now with a new set of rules... We simply would not be able to compete with them on labour costs ... but what we have on our side is technology. We will constantly need to think of new products and newer strategies if we are to survive. The firm's past strategy of responding to these challenges has been to automate its manufacturing functions and to downsize. It has also sold off some of its nonperforming assets and facilities and contracted out some of the services in a bid to cut costs. This strategy, while it has resulted in some improvements in the financial picture, has also brought with it negative union reaction and a decline in employee morale. Maple Leaf recently signed an agreement with the producers of Bumpy Bears, a popular TV series aimed at young children. Under this agreement, the firm will have exclusive rights to reproduce the various animal characters seen in the show on its footwear. Ticky the black bear, Rumpy the arctic bear, and Moosy the white bear are beloved characters in the show. This is expected to increase the sales of children's shoes; however, the embossing technology is expensive and may require initial heavy capital investments and additional training for some members of the workforce. Finally, the need for managerial training is felt now more than ever. The firm expects its activities to grow; however, given market conditions, it is not keen on expanding the size of its managerial cadre significantly. Instead, it would like to provide managerial and team-management skills to more of its employees and empower them to make decisions. In a recent interview, Robert Clark identified a number of issues that require immediate attention: 1. Contracts with two of the four unions in the company will expire in another eight months. The remaining two unions will not start their contract negotiations for another 18 months; however, what happens in the negotiations with these two unions could have a significant impact on all future contract negotiations. One of the unions with which negotiations are to begin soon, the Leather Workers' Association, recently elected a leader who is rumoured to be militant and highly focused on results. A strike in the immediate future could paralyze the firm, and it is doubtful whether the firm would recover from its debilitating results for quite some time. 2. Recently, two complaints of sex discrimination were filed by women employees. One complaint was settled internally in consultation with the concerned union, while the other had to go before the provincial Human Rights Commission. The decision of the commission was in favour of the employee who had filed the grievance. 3. The management of Maple Leaf Shoes believes that growth through expanded activities is critical now, especially given the competitive challenge. Growth is possible only by expanding its operations within and outside Canada. The management would like to expand its operations to Atlantic Canada and Quebec in the next three years-a new plant in Quebec is being considered for entry into that market because the product styling must be somewhat modified to meet the demands of the French market. It is felt that the same plant can produce footwear that can be exported to France and other parts of Europe. Currently, Maple Leaf shoes are sold (although in small numbers) in Belgium and Luxembourg. These markets were developed almost accidentally: a few years back, a cousin of Robert Clark, the president, took samples of Young Athlete shoes for display in his sports equipment shops in Belgium and Luxembourg; the shoes became popular locally. Maple Leaf Shoes also sells its shoes through a home-building and hardware store in England. However, about 80 percent of its foreign sales are in Oregon and California, where the shoes are displayed and sold through fashion boutiques. 4. Production levels in Maple Leaf Shoes have been continuously increasing; however, management has fought hard not to increase its workforce. The company currently uses a large number of part-time and contract employees for various services. While this strategy has resulted in some reduction in costs, it has also been accompanied by negative reactions from workers, supervisors, and unions. This is expected to be a major issue during the next bargaining session. 5. As far as possible, the company attempts to fill managerial positions through internal promotions and transfers; however, this has meant that management training is more critical today than ever before. 6. In an effort to take advantage of cheap labour abroad, the firm, in the recent past, has attempted to enter into joint venture partnerships with firms in Indonesia, Mexico, and India. However, this has also resulted in exposing the firm to additional risks characteristic of international operations. While its negotiations with the Mexican and Indian partners have been proceeding according to schedule, its experience in Indonesia was less than satisfactory. The firm's Indonesian partner fell victim to the "Asian crisis" of 1997-1998, when the Indonesian currency, the rupiah, fell by more than 33 percent in a matter of days. Its partner was on the verge of declaring insolvency. Maple Leaf is currently looking for another Indonesian partner. TABLE 1 Recent Financial Information on Maple Leaf Shoes Ltd. Current Year Last Year Year Before 3-Year Growth Rate Total revenue ($000) 1,512,904 1,461,604 1,488,840 1.45% Earnings before interest and tax ($000) 65,645 65,772 59,200 8.06% Profit/loss ($000) 26,258 29,597 29,008 -10.53% Earnings per share 1.33 1.47 1.35 -7.85% Dividends per share 0.30 0.33 0.35 Total assets ($000) 617,814 622,469 660,241 Number of employees 783 843 897 FIGURE 1 Maple Leaf Stock Price Added to the above is the void created by the resignation of John McAllister, the personnel manager who left the firm to take up a similar position in the west. Currently, the position of personnel manager in the firm is vacant. Pat Lim, general manager (marketing), is currently in charge of the human resource function, although all routine decisions and procedures are handled by Jane Reynolds, special assistant to the personnel manager. (Indeed, because of increased national and international marketing activities, Lim is often away from the office.) Robert Clark recently decided to rename the function as "human resource manager" to reflect the increasing importance of the activity. The management recognizes that a number of human resource procedures and systems within the firm are antiquated and must be replaced; however, cost pressures and day-to-day priorities have prevented the firm from systematizing various HR functions such as hiring, orientation, training, appraisal, and compensation. The firm hopes to hire a new human resource manager (HRM, as the position is now called) in the near future, who will bring about the needed changes. McAllister was with the company for only about three years. While he was credited with having "run a tight ship," several of his colleagues complained about his dominating and centralized leadership style. One of the managers went as far as saying that "Maple Leaf Shoes would not have been unionized this fast and to this extent but for John." McAllister's predecessor, Tim Donovan, was not a popular personnel manager either. Donovan, who resigned his position after a mere ten-month stay at Maple Leaf Shoes, did not have positive things to say about the company and its management. On the eve of his departure, he is reported to have confided in an associate: "The management system here is primitive. It's as if you are surrounded by forces of darkness. Of course, I could stay here and fight it out-maybe I would win in the end. But then I'm not masochistic!"

DISCUSSION QUESTIONS

1. What are some changes within Maple Leaf Shoes and in its environment that have caused a shift in its strategy? List the challenges facing the company using the classification provided in your text.

2. Assume that you are hired as a consultant to help the firm hire a new human resource manager. What immediate and long-term job responsibilities will you identify for the new job incumbent?

3. Identify three sample objectives of the human resource department at Maple Leaf Shoes and list associated strategy and action plans to be implemented by the department.