MiSTi, like many small technology companies, was born as an extension of the founder's special technical skills

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MiSTi, like many small technology companies, was born as an extension of the founder's special technical skills in the highly specialized field of "micro-switch" technology in the late 90's. Under founder Rodney Wiggelsworth's leadership, the company grew and expanded the micro-switch technology into new markets through internal growth and an acquisition. On his retirement, Mr. Wiggelsworth recruited professional outside management to run the company. Today, MiSTi is professionally managed; no family members or stockholders are involved in the day-to-day affairs of the company.

The company name "MiSTi" is an acronym formed from the original name, "Micro-Insulated Switch Technology, Incorporated. Today, the company is a single-plant manufacturer of special micro switches, serving many markets.

They began with "electrical" micro switches, and over the years they evolved the technology and moved into "hydraulic" micro switches. Several years ago, they acquired a small, underfunded, start-up company engaged in "sensor" micro-switch technology. Today, the company's three primary micro-switch product groups are: electrical, hydraulic, and sensor, all based on a similar technology.

They believe their growth was a result of their ability to leverage customer relationships and to sell the new "hydraulic" and "sensor" technology to their existing customers.

This "micro switch" segment of the much larger "switch industry" consists of 30 companies competing for a current annual volume of $635 million. The top four manufacturing companies account for 70 percent of the annual sales volume. The average "real" growth of the market is on the order of +2 percent, while the dollar volume growth rate is just over +5 percent.

MiSTi offers a complete product-mix within the market segments they serve and it competes on a national basis. On July 6, Bill Smith called a meeting of his executive committee.

"Look," he said, "I've asked that we get together this morning because I don't think any one of us can be very proud of the second quarter report." Without waiting for a response, he continued, "We have got to do something to get this company turned around. We simply can't continue to just keep pace with the industry. We have to grow, or we'll die."

"That's pretty strong language, isn't it?" said Mary Thompson. "I thought my salespeople had done a pretty good job. As a matter of fact, if they don't slow down a little bit, we are apt to lose them; after all, there is just so much we can ask them to do."

"Well, if you would ask them to collect some of those 90-day past due accounts, things might not look so bad," said Karen Rogers. "And, another thing, Mary, those Western Region distributors of yours are beginning to act like customers instead of employees." She continued, "I can tell you right now that if Bob Quinn doesn't get the factory straightened out, things are going to go from bad to worse."

"Wait a minute, Karen," interrupted Bill, "I know both you and Mary deserve to be heard, but I'm sick and tired of rehashing the same things over and over again. We have to get our thinking on the same track. From all I've read and heard, it seems to me we have to develop some sort of plan of where we want this company to go if we are going to succeed in turning it around."

"If you are going to start talking about planning again, maybe we should get something straight," replied Mary irritably. "I don't have time to chase after my salespeople, spoon-feed our distributors, provide active sales effort myself, and do planning on top of that."

"Simmer down, Mary," said Bill. "I know you are under the gun, but if we take it in easy stages, maybe we can come up with something better than we have now."

"Well, I would sure hope so," said Karen. "Just last week Quinn was complaining again that he can't plan a production schedule because he doesn't even have a sales forecast to work from."

"He has a forecast," shouted Mary. "I told him we could sell out the plant. What else does he want?"

"Look people," said Bill irritably, as he answered his phone, "We're getting nowhere." Cupping his hand over the mouthpiece, he continued, "Let's hold up this discussion for now; maybe we can talk about it at lunch." Rising, Mary and Karen left the office as Bill said, "Hello, this is Bill Smith."

At lunch Thompson said, "Bill, after we left your office, Karen and I talked about your ideas and I think we ought to do something. As a starting point, I think we need to be completely realistic about ourselves. Both Karen and I have made up a list of what we see as our strengths and weaknesses. Why don't you start, Karen."

"Well," said Karen pulling out a sheet of notes, "we still have a good credit position, but 75 percent of our accounts receivable are now on 90 days, and that's hurting our cash flow. It will start affecting credit, if we don't get things under control. Matching Galaxie's 20 percent trade discount is probably necessary, but it does hurt, especially when we are giving such liberal credit terms. Our before-tax profit on sales is 4 percent while, from what I've learned, the industry average is over 8 percent. Our before-tax return on equity is 7.7 percent. The before-tax return on Assets is 3 percent and the debt/equity ratio is presently 1.5. We had better work this down or there will be trouble."

"Our sales for the past 12 months total $17.5 million," said Mary. "Geographically, we sold 50 percent of volume within 100 miles of the plant; 20 percent came from the Midwest and another 10 percent came from the Northeast. The remaining 20 percent was pretty well scattered, with about 12 percent coming from our Western Region distributors.

"Without going into a detailed breakdown of product line sales, about 25 percent came from the hydraulic product lines, 59 percent came from the electrical, and the other 16 percent from the sensors products. Of course, the sensor line sells for about four times as much per unit cost as the rest of the product line. It's funny, but our Western Region distributors are getting 60 percent of their volume from the sensors line.

"Another interesting thing is that our top 50 customers account for 80 percent of our sales. Just the accounts you handle personally, Bill, account for 40 percent of all our sales."

"Mary, I'm gratified at the interest you and Karen have shown. This is just the kind of background data we need to have if we go ahead with any kind of planning activity." Bill continued, "I have a couple of insights to add. I would say MiSTi is a highly customer-oriented company. We go to almost any lengths to satisfy the customers' needs. For example, Quinn shut down his No. 2 line last week to switch over to the #24 sensor to get that order out to Jones in the Midwest Region. Sometimes I wonder if this is the way we should operate, but, by golly, we give our customers service.

"And, I think we have the best delivery time in the industry. Our average is about five weeks while the rest of the industry is running upwards of nine weeks on shipping.

"We are really quality producers! The quality of all our lines is darn good. We rarely argue with a customer about replacing any order that they say is inferior or out of spec.

"I think we have a bunch of really very good people working here at MiSTi. Of course, we have done a lot to keep them. You remember a few years ago, when things were pretty slack, and we kept everyone on the payroll?"

"We are also good community neighbors, if I do say so myself. We run a clean plant and we are as active in community affairs as we can be. You know, like the school fairs where we have the demo sensor model they can use for free.

"We've got some very good equipment and tremendous flexibility. Those last machines we bought for the sensor line are ideally suited to our operation. They are fast, though not the fastest; but more important, with the modification manufacturing made to the tooling, we produce the highest quality sensors in the least amount of time of anybody in the industry. We are really lucky that Bob thought to patent the tooling modification he came up with.

"While Quinn doesn't have a degree, he does run the plant effectively when you consider that the three of us are a bit on the risk-taker side.

"On the other side of the coin, I see that we have some major problems. We have a 30 percent waste factor in production. While we do reprocess the waste, it costs 10 percent of the raw material value to do it. We don't have a forecast and maybe we don't need it, but as a consequence, Quinn claims he does not have a continuing production schedule. We don't have more than $1.5 million in finished goods inventory, and our raw materials inventory is not worth mentioning. Galaxie is doing about $140 million and we have pretty much followed their lead in pricing and discounts.

"All in all, I think we are a good little company playing in a tough league. I've often thought our better hope would be to maintain our sales volume and achieve growth through new products."

The four top competitors have interactive Websites and they give their customers codes so they can order online. In that connection, MiSTi does have a Website but it's minimal and not updated on a regular basis. Bill said he wants to "wait till all our customers are online before we make a more substantial investment in it." Just last week one of the GE divisions, a good customer to the company, advised MiSTi that they no longer place orders with companies that are not fully online. All the major competitors have automated sales systems linked to their head office. It is one of the things that Mary has complained about to Bill.

MiSTi goes to all the major trade shows. Their booth used to win awards, but lately it has been looking a little tired. Still, "why spend the money on a new booth when we need to hold our costs in line?" said Karen. "Besides we have lots of customers for our salespeople to call on now."

They developed an internal training program for the R&D people who join the company and work on the product. It covers the history of the development of MiSTi switches, their original intended uses, market differences (for example, sensors used in aerospace applications versus security) and various different company switches.

There is a second training program for customer-service people to understand the basics of MiSTi's three key market segments, should any customers or dealers call with questions.

One suggestion that a new employee, hired from outside the industry, has made is to use a sensor for security of the company equipment, especially that used by the sales force. "It might be something we could even retail," was one comment. Bill does not think much of the idea. He stated, "We're in the B-to-B business."

Back in Bill's office Mary Thompson asked, "Well, Bill. Where do you think we should be in, say, five years?"

"Well, Mary, it might sound like wishful thinking, but I would like to see about $50 million in annual sales with 20 percent before-tax profit, and double our market share," stated Bill.

MiSTi Market Share and Coverage

MiSTi has a market share of 2.8% of the total sales. The company fields a sales force of 14 direct salesmen. In addition, they sell to four distributors on the West Coast.

Of the company's 700 active customers, the top 35 direct customers account for 50% of its sales.

Its top 35 direct customers plus their four distributors account for 60% of the sales. The top 50 accounts including the distributors generate over 80% of their total revenue.

Geographically, the sales are distributed as follows:

Within 100 miles of the plant	50%
Midwest Region	20%
Northeast Region	10%
Western Region	10%
The remaining, scattered	10%
Total	100%

MiSTi carries a full line of several hundred products and competes on a national basis. Its product mix can be classified in line with the industry as follows:

% of			Units	% of	Annual
$ Vol. (mm)		Co. Total	Vol. (mm)	Co. Total	Growth
Hydraulic:	4.375	25.0%	4.935	40.3%	+1%
Electrical:	10.325	59.0%	6.685	54.6%	+1%
Sensors:	2.800	16.0%	0.630	5.1%	+16%
Totals	17.500	100%	12.250	100%	+1.7%

Though the Company has not grown as fast as the industry, their profits have grown from 1% before taxes five years ago to about 4% currently.

Industry		MISTI
Average Sale		Average Sale	Cost of Goods
$ Price/Unit		$ Price/Unit	$ Price/Unit
Hydraulic:	2.24	0.89	0.85
Electrical:	1.55	1.54	1.38
Sensors:	2.96	4.44	1.45
Manufacturing

The company is operating at capacity with present mix. The hydraulic items run
fastest. If based on hydraulic @ 100%, then the mix efficiency is as follows:
Hydraulic equals 100%.
Electrical equals 90%.
Sensors equal 80%.

Income Statement

(000,000)

Net Sales	$ 17.50
Cost Of Materials	$ 9.10
Direct Labor	$ 5.60
Factory Overhead	$ 0.70
Total Cost of Goods	$ 15.40
Gross Margin	$ 2.10

General and Administration	$ 1.40

Profit Before Taxes	$ 0.70

MiSTi Sales and Volume Breakout MC

Total Sales: $635 million

Volume: 293 million units

Products:

Wide range of products with minor but precise and progressive differences in size. Products can be divided into three distinct classes.

$ Vol.			Unit %	Total	Annual	Average
(mm)		% Total	(mm)	Vol.	Growth	$Price/Unit
Hydraulic:	240	37.8	107	36.5	+1%	2.24
Electrical:	170	26.8	110	37.5	+5%	1.55
Sensors:	225	35.4	76	25.9	+13%	2.96
Totals	635	100.0	293	100.0

Industry Breakout

Products are components for subassemblies and assemblies in a wide range of products. Some of the markets are as follows:

Industry Hydraulic		Electronic	Sensors
Aerospace	no	yes	yes
Automotive manufacturers	no	yes	yes
Automotive after-market	yes	yes	yes
Automatic production lines	yes	yes	yes
Electronic computing equipment	no	yes	yes
Refrigeration machinery	yes	no	no
Telecommunication equipment	no	yes	yes
Transformers	yes	no	no
Switch gear	yes	no	no
Security sensors	no	no	yes
Industrial controls	yes	yes	yes

Market Competitor Breakout

There are 30 companies in the industry. Five years ago there were 43. The top four companies account for 70% of the total sales.

Top 4 Co.s	Market Share	$ Volume (mm)
Galaxie, PLC	23%	$146.0
Liemuex	20%	$127.0
Smith & Co.	17%	$108.0
O & E, Inc.	10%	$64.0
Total Top 4	70%	$445.0
MiSTi	2.8%	$17.5
Distribution

Sales are made to manufacturers of subassemblies as well as to OEM manufacturers. Sales are made by both direct factory-salesmen and by distributor salesmen.

Galaxie, PLC has a sales force of 172 plus 20 distributors.
Liemuex has a sales force of 102 but no distributors.
Smith & Co. has a sales force of 65 plus 25 distributors.
& E, Inc. has a sales force of 12 plus 5 distributors.

Case Questions

Evaluate the Marketing elements as noted below to build your case. Your evaluation should include:

Situational Analysis

Provides a well-focused review of the present situation and strategic challenges; descriptions are compelling and insightful; provides the facts or elements that will be used in the case to support the recommendation, objectives and strategies
The analysis should include both internal and external environments.

SWOT

Develop a SWOT analysis. For each box in the matrix identify an action to be taken.

Recommendation

What are you recommending that needs to be done to accomplish this plan?
Provide rationale to support each of your recommendations

Positioning Statement

positioning statement.
Provide 3 points of rational that support your effective positioning statement.

Goals

What are the volume goal(s) of your product?
What are the revenue goal(s) of your product?
What are you margin goal(s) of your product?
What are the profit goal(s) of your product?
Do you have any other goals for your plan?

Objectives

Once you have a thorough understanding of all the marketing environments, you can set your objectives.
Marketing objectives must reflect the overall organizational strategic goals and objectives.
The marketing objectives state what the company or project would like to accomplish (in the time frame that the plan is being developed for) in order to achieve all its goals.
Use SMART Objectives

Strategies

When the objectives have established what will be done to achieve the goals, we need to add the strategies.
The strategies are how we will accomplish the objective.

Tactics

Specific activities devised for carrying out each major strategy.
Action Plans specifically answer the questions of what is to be done, the person responsible, how the tasks will be accomplished and how much each activity will cost.

Budget

What are the costs of each of the marketing programs?

Summary

Provides a thorough and effective summary that defines the overall direction, summary recommendation, and expectations of how the recommendation will be achieved for the fiscal year. This is set up to ask management to approve the plan based on what marketing will deliver.