1. (TCOs A and B)  Writing a Management Board Memo

Your Role
You are the manager of the Sales Department of The Medical Corporation (TMC), a department that employs 25 sales representatives. As the result of reduced revenues and increased expenses, TMC’s Management Board has voted to implement a “right-size action” that could result in personnel reductions in your department in the next two years. As the manager of the Sales Department, you are responsible for announcing the proposed right-size action to your employees.

Background
The Medical Corporation (TMC) is a worldwide marketer of medical supplies and services. Established in 1980, the company enjoyed dynamic growth during its first two decades as part of the flourishing pharmaceutical industry. TMC’s revenues surpassed $1 billion in just five years; its stock rose an average of 12 percent a year during its first decade, and per share earnings consistently exceeded industry averages.
However, despite revenue increases of over 10 percent each year for the past twenty years, TMC’s growth appears to be slowing down, partly because the pharmaceutical industry as a whole industry is now being scrutinized for its excessive prices and declining service. Last year, for example, TMC revenue in the United States was $5 billion, an increase of only 2.0 percent over the prior year; non-U.S. operations generated $2 billion in revenues, a three percent decrease over the prior year. Gross profit margins, driven by extreme pricing pressures, have declined for the past three years.

In response to this declining performance, TMC’s Management Board recently voted to “right-size” its worldwide business operations. The Management Board announced three areas of emphasis in the company’s right-size action:

increase responsiveness to customers through technology
segment markets to pursue the best opportunities
improve internal efficiency through a workforce “right-size” action

Right-size actions will include layoffs and reductions in the company’s worldwide workforce, elimination of office space, and increased use of technology and information systems to generate and manage business. These actions are not only intended to bring TMC’s cost and expense structure back in line with current industry levels; they also will strengthen TMC’s position as a global leader in the pharmaceutical industry.

Expanded Online Presence
One of the ways TMC will increase responsiveness to its customers is to expand its online sales and marketing strategies. The emphasis on an online presence will play a key role in widening the customer base and increasing sales without a significant increase in expense.  The new online presence and strategies are expected to double the number of online customers within 24 months of the plan’s implementation.

When TMC made this decision, the company recognized that if the new online strategies were successful, they would no longer need the same sales force. Predictions are that if the new strategy is successful, the Sales Department could be reduced from 25 to about 20 employees. Reductions in the Sales Department would not begin, however, until the Management Board is satisfied that the online sales expansion is successful, probably in the next 12 to 18 months.

In the meantime, the manager of the Sales Department has been asked to identify five employees who could be terminated as a result of the right-size action. Terminated employees will receive a package that will include a $25,000 one-time cash settlement, medical and dental benefits for five years, and employment assistance from Drake’s Placement Service for six months. They will also be given at least six months’ notice of their termination.

YOUR ASSIGNMENT
Management Board Memo: Write a memo to the Management Board in which you describe how you, as the Sales Department Manager, will determine which sales representatives could be terminated as a result of the company’s right-size action, if this becomes necessary, and how you will communicate the right-size plan, and its possible impact on the Sales Department, to the sales staff in a way that will minimize the morale problems that gossip about the plan could cause.  You can communicate that you hope you will not have to terminate anyone, but you should also communicate that you have a clear, well-thought-out, and implementable plan if dismissals are required.