CASE STUDY #1 - COVINGTON CORRUGATED PARTS & SERVICES (Based on the case from Organization Theory & Design by Richard L. Daft, 12th edition) (Read the below case study and write the answers to the questions given at the end in a word file and submit the word file via the submission link in the Case Study section of your blackboard course before the due date) Larisa Harrison grimaced as she looked at her companys latest quarterly earnings. When sales at Virginiabased Covington Corrugated Parts & Services surged past the $10 million mark some time back, Larisa was certain the company was positioned for steady growth. Today Covington, which provides precision machine parts and service to the domestic corrugated box and paperboard industry, still enjoys a dominant market share, but sales and profits are showing signs of stagnation. A few decades ago, Larisas grandfather loaned her the money to start the business and handed over the barn on the familys farm to serve as her factory. Soon, Larisa became one of the major employers in the local area. Today, Covington operates from a large factory just a few miles from that barn. The business allowed Larisa to make a good living without having to leave her close-knit extended family and rural roots. She also felt satisfaction at employing 150 people, many of them neighbors. They were a set of hard-working and loyal employees. However, many of her original employees were now nearing retirement. Replacing those skilled workers would be difficult. The areas young people were more likely to move away in search of employment than their parents had been. Those who remained behind didnt seem to have the work ethic Larisa had come to expect in her employees. Other problems loomed as well. Covingtons market share, once at 70%, was slipping fast. The reason for this was not only the emergence of new direct competitors but also the changes in the industry. The box and paperboard industry had never been very recession resistant, with demand fluctuating constantly. The rocky economy had hurt the whole industry, including Covingtons largest customers. Added to that, alternative shipping products, such as flexible plastic films and reusable plastic containers, were becoming more popular. It remained to be seen how much of a dent these alternate prodcuts would make in the demand for Covingtons boxes & paperboard. Even more worrying, industry consolidation had wiped out hundreds of the smaller U.S. plants that Covington once served, with many of the survivors either opening overseas facilities or entering into joint ventures abroad. The surviving manufacturers were investing in higher quality machines from Germany that broke down less frequently, thus requiring fewer of Covingtons parts. Covington was clearly at a crossroads, and its managers were arguing about which direction the company should take. If Covington wanted to grow, business as usual wasnt going to work. But no one seemed to agree on the best way to achieve growth. The Marketing Manager was pushing for moving into new products and services, perhaps even serving other industries. The argument of the Marketing Manager was that Covington should invest more in research and development and innovate to come up with new and unique products that would set Covington apart from its competitors. I know corrugated is in our name, she said, but weve already moved beyond that to servicing other types of paperboard-making equipment. Why not become the all-around provider, serving any manufacturer that makes containers and packing materials, whether its paper, plastic, or whatever? As per the marketing manager, Covington was at a stage where it needed to innovate rapidly into offering a broad range of products and even take some risk by aquiring firms that produced such products to boost sale. The Marketing Manager thus wanted Covington to adopt an aggressive and dynamic approach that would focus on capitalizing on opportunities in its environment by getting new customers to grow quickly. The Finance Director, however was of a very different opinion and believed that Covington should focus on maintaining its current customers. He suggested that Covington should focus on making its production plant more efficient, and perhaps even laying off employees. The aim would be to reduce the production cost of MGMT445 Case Study #1 Covingtons current products. This would allow Covington to offer these products to customers at a lower price so that customers do not switch to other alternative products from competitors. Larisa cringed as she heard that statement because her focus was always on what was best for her employees. The Finance Director added that efficiency and profitability should be the key criteria by which Covington measured its performance. According to him, rather than taking a risk by investing money into innovating new products, Covington should invest money in increasing the efficiency of its internal processes and bringing down operational costs to reduce the price of its current products. The idea was that this low product price would increase demand by customers and profits would result by selling a large volume of these low cost products. Thus, the Finance Director wanted Covington to focus on retaining its current customers rather than on taking risk and trying to grow rapidly. Meanwhile, the Vice President of Manufacturing made an observation that seemed to be midway between what the Marketing Manager and the Finance Director were suggesting. He agreed with the Finance Director that increasing the efficiency of the current production process would bring down the price of Covingtons current products and boost demand from customers. But he also noted that this might be a short-term solution because he noted that the industry was slowly moving onto using other products that were more advanced than the ones Covington currently sold. As such, the Vice President of Manufacturing knew that even if they went with the suggestion of the Finance Director, it would be a short-term solution because in the long-run Covington would need to innovate and come up with newer and more advanced products to survive in the market, as was being suggested by the Marketing Manager. As Larisa considered these different arguments, she realized that Covington had succeeded for two decades with a loose, even haphazard structure, because everyone seemed focused on building the business. People simply did what needed to be done. However, the company had never been under threat before. Perhaps we just arent as well organized as we need to be to handle the challenges Covington is facing, she thought. As she watched the last shift workers walk to their cars, Larisa pulled out a report that a consultant friend had developed for her a few months ago.

The report emphasized: Covington rated very high on employee morale. Covington was rated low on innovation and change. The Covington culture emphasized production efficiency. The Covington culture was not intensely focused on developing new customers. Each department did its job well, but collaboration across departments was rated low to medium. The industry would continue to change toward fewer paperboard machines and toward higher quality imported machines. Questions 1. What are some of the issues/problems that Covington is facing? 2. Based on the Miles and Snow Model of strategic approaches, what types of strategies are being suggested by a) Finance Director b) Marketing Manager 3. Based on the Miles and Snow Model, what type of strategy and steps do you recommend Covington to take going forward, especially in light of the observation made by the vice president of manufacturing?