Case Study

GlobalTech

Contents
CASE STUDY GlobalTech: Navigating Change The Early Years Transition in Leadership A Changing Market The Current Situation Financials: Income Statements Key Figures in the Company Organization Chart 1 2 3 4 5 6 6 7

Authors Note:
The GlobalTech Case provides a snapshot of a company at a critical time in a particular industry. The case reinforces just how quickly times change. Think back to the mid-1990s. Technologies such as GPS and the Internet were just starting to get mainstream traction. Today, both of these technologies are everywhere. In fact, we are often left to wonder how we would live without them! This is the pace of change that organizations today are challenged to navigate. GlobalTech make it? Thats up to you! Will

last revision: June 22, 2010

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GlobalTech: Navigating Change

Gagnon recognized GlobalTech's survival was dependent upon the welfare of his customers - the local electronics manufacturers - and he sought to develop, manufacture and market his own products

GlobalTech was founded by Maurice Gagnon in the spring of 1975 to meet the growing electronic assembly demands of high-tech manufacturers in the local area. By the early 1980s, GlobalTech had grown to 40 employees and had built a reputation as a quality assembler of low-volume, highlyspecialized electronic components for local military manufacturers. GlobalTech was by all accounts "quite a profitable and tightly run shop". Despite this early success, Gagnon recognized GlobalTech's survival was dependent upon the welfare of his customers - the local electronics manufacturers - and he sought to develop, manufacture and market his own products. In the early 1980s Gagnon was introduced to Brian Johnson, a senior research scientist at the National Research Council. At the time, Johnson had made significant breakthroughs on a new satellite technology that enabled individuals to pinpoint their exact geographic coordinates. Johnson was looking for a partner interested in commercializing this global positioning system (GPS) technology. GlobalTech had the manufacturing expertise Johnson was in search of, and Johnsons GPS technology would give Gagnon his own product to take to market.

The Early Years

DND was interested in supporting the development of the GPS technology for use in aircraft, naval vessels and possibly for land vehicles. Gagnon and Johnson both recognized that the military establishment was keen to integrate this new technology into its transportation infrastructure

Over the next couple of years, Gagnon secured financing to build and staff an R&D department around Johnson. He also hired some experienced sales personnel. Johnson stayed on at the NRC where he solidified his relationship with his primary funding source - the Department of National Defense (DND). DND was interested in supporting the development of the GPS technology for use in aircraft, naval vessels and possibly for land vehicles. Gagnon and Johnson both recognized that the military establishment was keen to integrate this new technology into its transportation infrastructure. Johnson eventually joined GlobalTech as a 40% equity owner and the company's first vice-president of Research and Development. He brought with him a small group of scientists that he had worked with in the past. GlobalTech now had the R&D department that Gagnon had envisioned only two years prior. Working closely with employees from manufacturing and actively seeking input from military customers, R&D was quick to develop a first generation design from Johnson's original prototype. By the mid-1980s, GlobalTech had secured its first military contract - supplying 45 global positioning systems to a manufacturer of "search-and-rescue" helicopters. In short time, GlobalTech built a reputation as one of the world's leading manufacturers of rugged, allweather global positioning systems. During this period GlobalTech won several awards recognizing both its engineering prowess and manufacturing quality. The partnership had grown very profitable.

Transition in Leadership
A group of employees...used the confusion surrounding the leadership transition to push for plant unionization...The vote was unanimously in favour of unionization.

Gagnon slowly scaled back his involvement in the company. His health eventually compelled him to step aside as President and CEO, and he subsequently appointed Johnson to the position. Although he retained majority ownership of GlobalTech, Gagnon reduced his involvement to the position of Chair of the Board of Directors. Johnson was immediately faced with a major human resource challenge when a group of employees, led by Robert Brown, an electronics technician in the manufacturing department, used the confusion surrounding the leadership transition to push for plant unionization. Gagnon's tough and often confrontational management style had created tensions on the plant floor that had been growing for several years. The vote was unanimously in favour of unionization. Amidst this internal chaos, GlobalTech nevertheless continued to thrive. The company had grown to over 120 employees and it was now recognized as one of the premier manufacturers of global positioning systems in the world. Its product line continued to boast cutting edge technology and its advertising brochure listed numerous customer references to the "bomb-proof" quality of its products. GlobalTech remained committed to developing products for the military market as this segment continued to account for over 97% of the company's total revenues. The dynamics of the marketplace, however, were changing. Military contracts started to peak and with the end of the cold war and as a "New World Order" emerged, defense spending in many countries was slashed. Johnson understood these changing dynamics: "I knew that if we were going to survive in the 1990s, we would have to do something different."

A Changing Market
The commercial market for GPS technology was still young... If this commercial orientation was going to be our future, and at the time I wasn't convinced it was, then we needed to shift our focus

When asked to reflect on the state of his company during this time, Johnson replied: "The commercial market for GPS technology was still young. A number of companies had sprung up to address the perceived future GPS needs of the general public. But from our perspective, their technology was quite primitive. Their strategy was to package basic technology product features our military products offered years ago surround this with a nice looking console and slick interface, and sell it for $2,500. We were used to producing cutting edge GPS technology that would start at $25,000 and climb to $100,000. If this commercial orientation was going to be our future, and at the time I wasn't convinced it was, then we needed to shift our focus quickly." With military contracts continuing to decline and the commercial market starting to grow, Johnson made two key strategic decisions. Recognizing that GlobalTech had little experience in developing or marketing products for the commercial sector, he lured Jennifer Smith, an accomplished engineer and product manager from the telecommunications industry to head up the R&D department. Johnson's second move was to strengthen the company's marketing department. Prior to this point, marketing was focused on procuring military contracts. The department had very little experience with commercial customers. To address this weakness, Johnson brought in another outsider, Catherine Lalonde, a marketing executive from the software industry. Lalonde's mandate was to build a strong team and develop key distribution channels around the commercial market.

The Current Situation

GlobalTech lost $732,000, its first loss since the year it was founded. Last year, GlobalTech lost a further $1.63 million... forced the company into a series of austerity measures - laying off employees and reducing departmental budgets.

The demand for personal global positioning systems was starting to gain momentum. Individuals were purchasing GPS units for their sailboats, private airplanes, and for other general adventuring activities. Two companies had emerged as industry leaders: NaVisionTech and Sateye International. GlobalTech meanwhile had only 6% of the total commercial market for GPS. Both competitors had entered the commercial market well before GlobalTech and had built solid brands. They produced attractive and competitively priced GPS products and were known to introduce new products at a rate twice that of GlobalTech. Jennifer Smith was recently promoted to a newly created position: Executive VP Technology. Her new mandate was to better integrate the efforts of R&D, Marketing and Manufacturing to produce more commercially-oriented products. The VP R&D vacancy was filled by distinguished GlobalTech scientist Scott Bell (See Exhibit 1: GlobalTech's Organizational Structure). Two years ago, GlobalTech lost $732,000, its first loss since the year it was founded. Last year, GlobalTech lost a further $1.63 million (See Exhibit 2: Income Statements). This situation has forced the company into a series of austerity measures - laying off employees and reducing departmental budgets. Forecasts for next year were unavailable at the time of this report's preparation.

Financials: Income Statements (1990-1995, $ thousands)

1990
REVENUE COST OF GOODS GROSS MARGIN EXPENSES OPERATING INCOME DEPRECIATION PROFIT BEFORE INTEREST INTEREST PROFIT BEFORE TAX TAXES DIVIDENDS PROFIT AFTER TAX 14,000 6,860 7,140 3,940 3,200 140 3,060 22 3,038 1337 500 1,201

1991
13,500 6,075 7,425 4,800 2,625 104 2,521 23 2,498 1140 0 1,358

1992
12,000 5,640 6,360 3,760 2,600 106 2,494 18 2,476 1100 0 1,376

1993
10,700 4,922 5,778 4,578 1,200 103 1,097 21 1,076 410 0 666

1994
10,000 4,300 5,700 6,300 -600 110 -732 22 -732 0 0 -732

1995
9,500 4,275 5,225 6,725 -1,500 106 -1,628 22 -1,628 0 0 -1628

Key Figures in the Company

Maurice Gagnon
Chair of the Board

Brian Johnson
President & CEO

Robert Brown
Union Representative

Jennifer Smith
VP Technology

Cathy Lalonde
VP Marketing

Scott Bell
VP Research & Development

Organization Chart