HBR CASE STUDY Welcome Aboard (But Don’t Change a Thing) by Eric McNulty The folks at Lakeland Wonders were thrilled when they got a new CEO with fresh, bold ideas-un' HERYL HALLSTROM checked her wristwatch as she made her way toward the office of Mark Daw- son, her senior vice president of opera- tions. It was only 6:30 PM, but the build- ing seemed deserted. “That's another thing that’s going to have to change if we're going to make it in the twenty- first century? she muttered to herself. ‘The thick report she carried-the one on manufacturing strategy that Mark had 32 prepared-weighed heavily on her mind. Ttwas clear that Mark had no intention of moving quickly to make her vision of the company a reality. He didn’t even seem to understand that vision, much less buy in tot. But she had waited long, enough. The time had come to set him straight — if, that is, he hadn't already bolted for home like everyone else. Cheryl was just approaching her six: ‘month anniversary as the CEO of Lake- she started to act on them. land Wonders. A manufacturer of high- {quality wooden toys, it had three plants in Minnesota and almost 5,000 employ- ‘ees. Brought in when Walter Swensen IV was ready to retire and it was clear that none of his children wanted to take an active role in the business, she was the first person from outside the family to hold the top job. But she wasn’t entirely ‘a newcomer. Her relationship with the company had started years earlier when HARVARD BUSINESS REVIEWshe was the general merchandise man- ager, and later the COO, of one of Lake- land’s largest customers, Kids&Com- pany, an upscale retail chain based in ‘Chicago. Cheryl had worked with Lake- land to develop new products for which Kids&Company had six-month exclu- sives; many of those became best-sellers. Cheryl was widely known as the driving force behind the growth of Kids&Company from a small regional chain to a national presence with more than 150 stores. Her energy and enthu- siasm were infectious, and she always seemed to be one step ahead of the mar- ket. Most important, she knew how to generate profits, Swensen saw her asthe logical succession choice, and he spent several months persuading her to take the reins. He wanted Lakeland to grow, and he felt sure Cheryl would take this 94-year-old company to the next level After all, even though he was stepping down, his holdings in the company were still the primary source of wealth for him and his family. Now, as she strode toward Mark's of- fice, Cheryl wondered why her expan- sive vision for Lakeland didn't seem to be taking hold. She tried to lead by ex- ample: traveling a pounding schedule to visit customers, setting aggressive deadlines for new projects, and propos- ing a bonus scheme to the union for im- proving cycle times. But the sales force was only slowly increasing the number of calls it was making without her, and her bonus plan had been received in- differently by the union officials. They'd be happy to produce more, they said, but only if Cheryl agreed to put on a third shift. Mark’s lukewarm report on offshore manufacturing was just the lat- est hitch. It seemed as though her man- agers were giving her the nod on the surface, all the while building elaborate arguments for going more slowly than she knew they needed to go. She came through the doorway as Mark was shutting down his computer. “Got a minute?” she asked. Mark leaned back in his chair with a hint of resignation. “Sure, boss” He ‘was a large man with a boyish face, and he had often collaborated with Cheryl when she was at Kids&Company to get new products ftom prototype to full run, He'd seemed unflappable then ~ he'd always found a way to get the toys ‘made quickly, without sacrificing the quality that gave Lakeland’s products their specialness. Cheryl dropped the report onto his desk. “This is just not going to cut it, Mark. Bull's Eye Stores is looking for an exclusive line of wooden toys, and they'd love it to come from us. I know ‘everyone thinks I'm crazy, but we can meet their pricing requirements—if we can establish manufacturing capabili- ties offshore in plenty of time to ship for Holiday?” “know that, but...” Mark began. “C'mon, Mark. You've been in this or ganization for more than 25 years. Run- ning manufacturing for, what, 12” “Fourteen? he corrected her. “Fourteen. So you know better than anyone that offshore manufacturing is the future of this business. If we really want to grow Lakeland, we've got to go beyond the upscale market and get into the midmarket. We can’t do that with our plants here; our costs are too high. But your report”she tapped its cover with her forefinger -“says we should delay any move offshore for at least a year. You know as well as I do that that means losing the Bull's Eye deal.” “understand where you want to go, Cheryl. But we can’t just hop on a plane to China and open a factory tomorrow. We'd be out of our league. What’s more, it would take our focus off the manu- facturing operation here.” “We don't have to build a factory, ‘Mark, You know we can source this pro- duction. That's the only way we're going toget the Bull’s-Eye contract-and as far as Ican see, that contract isthe only way ‘we're going to meet the board’s growth. targets” Cheryl paced in front of his desk. “Did you call Cecil at Kids&Com- any, as I asked you to? He's sourcing private-label products from China, In- donesia, and the Philippines” “We're playing telephone tag” Mark murmured, “But my bigger concern, Cheryl, is the union. Our contract is up {in nine months, and you really don't want to go into negotiations at the same time you're moving manufactur- ing offshore?” “We're not talking about cutting jobs here in Minnesota. Hell, we're adding capacity” “You know that I worked my way up from the floor, so I understand the union point of view. Believe me, they won't see this the way you do. They'll “Everyone here is in the slow lane. They're all wedded to the ways things have always been done.” think it’s the first step to outsourcing all our manufacturing. Frankly, I can’t say Yd blame them?” “{ don't think you understand. To ‘meet our targets, we need to get Bull's: Eye on board. If we lose this contract, it’s not going to be for lack of effort. Keep working on this ~and be ready to talk about it at our meeting tomor- row? Then she added, “Mark, we go way back. I have full confidence in you. We can do this” She left him with an en- couraging smile. As Cheryl pulled out of the parking lot, she replayed a conversation she'd had earlier that day. Pat Sampsen, the head of Sampsen Design in Chicago, had called to say that he had picked up ‘two packaging design awards—both for Kids&Company private-label products that she had spearheaded. She had been puzzled, though, when he told her that, no, he hadn’t heard from Barry Quince, Lakeland’s design director. She had pointedly asked Barry to give Pat a call two weeks ago. She was convinced that, the local design firm Barry used just wasn't capable of top-notch work, and she wanted him to consider larger out- fits like Sampsen Design. HBR’s cases, which are fictional, present common managerial dilemmas and offer concrete solutions from experts ‘ocToBER 2002 33HBR CASE STUDY + Welcome Aboard (But Don’t Change a Thing) “Why,” she wondered, “does every- one up here seem to be dragging thei feet? My manufacturing head doesn't want to manufacture overseas,” she mused, “and my design director pro- tects his little, mediocre design firm. ve been trying since my first week to get the procurement people to look at con- solidating vendors for core parts, but you'd think Pd asked them to cut off their hands. Everyone here isin the slow Jane. They're all wedded to the ways things have always been done. “Maybe)’she thought, “Ineed to bring in some fresh blood. If I could get Pat’s firm for our packaging and marketing materials, and I could recruit Cecil from Kids&Company to work on outsoure- ing, I could start to tackle some of the other issues? She was feeling slightly ‘more optimistic as she tured into her driveway. Charting a Course ‘At 10:30 the next day, Cheryl and the ‘management team gathered in the con- ference room. This space had been the CEO's office for generations, but when ‘Cheryl came on board, she chose an of- fice in the center of the executive floor and had this corner office converted into a conference room. She thought it was a good symbolic act: Things were going to be different, and she intended to be right in the thick of the action. Mark was sitting at the round table, along with Elaine Spenser from mar- keting; Jerry Silistro from sales; and Ned. Honester, the CFO. “Let's get right to it) Cheryl began. “Pve given you an overview of my vision for launching us into the midmarket, and this Bulls-Eye contract is a great place to start. As leaders in this company, you each play a key role. I'd like to hear your ‘thoughts about how we move forward. Elaine, why don't you get us started?” Elaine reported what Cheryl already knew: Research confirmed that the mid- dle of the nonelectronic toy market was the only segment projected for double- digit growth, and those consumers were shopping at big chains like Bull's Eye, not at specialty stores. Soy’ she concluded, “I think we can launch a lower-priced line, provided it’s differentiated, for the midmarket with out cannibalizing our existing base.” “Great, Elaine” Cheryl had asked her to speak first because of Elaine's enthu- siasm for undertaking new projects. Cheryl also realized that building mo- mentum would be crucial in order to reach a consensus around her vision for ‘the company. “one more thing, Cheryl Elaine said. “yes?” “1 don't want to overlook the brand- {ng issues. Every package we ship-and every delivery truck ~ is emblazoned with ‘Handcrafted with pride in the USA? We'll have to be extremely careful with the message we send, and we'll need to invest in more advertising, We don't want to face a backlash if people think we're not an American company any longer?” “Do you think you can handle it with the right resources?” “ttshouldn’t be a problem. Pilight a fire under our ad firm, and I'll get Barry to work up new packaging ideas” “Good. This could be a great chance for Barry to try working with Sampsen Design. Ask him to give them a call.” “Barry was thinking it would be fun for our local designers” “think it would be fun to have some world-class packaging,’ Cheryl said, nod- ding slowly at Elaine. “Have him call Sampsen. Now, Jerry, what do you see from a sales perspective?’ “Wait a second? Mark interrupted. He didn’t want to drop the made-in- the-USA issue so quickly. He reminded Cheryl that when she was at Kids&Com- pany, she had told him that Lakeland’s USS. manufacturing base was a great strength. He wanted to know what had changed and how she thought cus- tomers like Kids&Company would re- act to the move. Cheryl reminded him that when she'd made that comment, her priority was to maintain Kids&Com- pany’s competitive advantage. But now she needed to act in Lakeland’s best in- terest, and that meant expanding into every viable market. As long as Lake- land was manufacturing only in the United States, its costs would be too high for it to sellin lower-priced mar- kets. That said, she again asked Jerry to weigh in on sales. Jerry also did exactly what Cheryl had come to expect. He expressed en- thusiasm for the opportunity but then launched into a litany of reasons why he'd need significant new resources to handle it Cheryl was thinking about how best to respond when Mark said, “Jerry, lets talk about delivery. What do you think?” “It’s critical, of course —especially for Holiday. One of our biggest advantages is that we virtually always ship on time. ‘Tresio has to ship across the Atlantic and get through customs~so there are many more opportunities for things to ‘go wrong,” “rm just wondering, Jerry, because our contract with the union is up fairly soon?’ said Mark. “What if this move leads to a slowdown or a strike? Where would that put us?” Looking at Cheryl, Jerry replied, “It would be a disaster” He turned back to Mark and asked, “Do you think that ‘would happen?” Cheryl could fee! the meeting swing- ing away from her, so she quickly asked Ned to weigh in “| want to remind everyone that the board has given us a very aggressive growth target. We can’t forget that ‘Mr. Swensen sold 30% of his holdings to Hastings, Curtiss when he retired, and venture firms are relentless in their pur- suit of growth. know that Cheryl's plan Eric McNulty is the managing director ofthe conferences division of Harvard Business ‘School Publishing, HBR's parent company, in Boston. HARVARD BUSINESS REVIEW