Enclean Case
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This case analyses situation described in the HBR article about EnClean.
Major issues facing EnClean.
A. Stock price is down more than 85% from its high of $22.
Company has been losing money since the first quarter of 1992. Financial fundamentals are sagging:
Gross margin is dropping;
SG&A are too high;
debt is huge;
As a result, investors have lost confidence in the company.
B. Managerial incompetence.
COO has lost control over several major companys SBUs. Since 1989 EnClean has been failing the task of properly integrating acquired companies. Business units such as CMC, AlphaChem, and Sizemore have resisted change and have never accepted the vision, the mission, and the common strategy of EnClean.
C. Demoralized personnel.
Because of the following problems EnClean is losing highly valuable sales and technical associates:
absence of clear goals;
lack of training;
confusing deliverables;
faulty employee recognition system;
blame culture, finger pointing;
conflict between corporate and divisional interests;
D. Uncertain/declining economic conditions.
Economy has been in recession for several years;
Environmental cause has received a hard blow in 1992 when president Bush Sr. postponed or cancelled many environmental laws. As a result, companies began to postpone environment-related jobs.
E. Facing heavier competition.
Environmental side of the EnCleans business faces increased competition due to the business erosion. Competition lowers prices to secure the reduced amount of work.
Industrial side of the EnCleans business faces equal competition. For instance, 1992 saw the emergence of two potent competitors: WMX Technologies and Rust International.
F. Losing the focus on quality.
Since 1988 EnClean had been basing its strategy on providing high quality service (as opposed to low-cost). Quality improvement and control processes had been developed and successfully maintained. However, by 1992, as a result of rapid expansion, many divisions were executing quality procedures as a formality, just to satisfy the corporate group. Thus, EnClean is undermining its core competency – high quality service.
What should have been done differently?
While we were growing over the years, we should have kept in check our financial fundamentals. Our desire to grow through acquisitions was so great that we would often undermine our ability to sustain that growth. Our cash flow was always a problem, and our debt-to-equity ratio ranges between the appalling 1,563% (!) in 1986 to still huge 208% in 1992.
We should have limited our acquisitions to the companies within our core competency and to those compatible with our strategies. In our early years, for example, when we bought Maintech International, we negotiated hard to buy their industrial services, but not their specialty chemical operations.
But later on, we went against these principles. For instance, we acquired AlphaTech that was primarily a products distribution company, and therefore, outside of our competency. Another acquisition, Sizemore, did not have expertise in small pond dewatering; therefore we could not leverage its resources for our existing customers.
We should have paid a great deal more attention to leveraging economies of scale, corporate values, and core competencies throughout all acquired companies. In our early years, when we acquired Parkem, we made sure the management transition was smooth, customer base was combined, and we leveraged by cross selling and reduced operational expenses.
However, subsequently, the transition