Company Profile of Executone Information Systems
Company Profile of Executone Information Systems
Executone Information Systems, based in Milord, Connecticut, which designed and marketed telecommunications products for small-and medium-sized businesses, has become a major telecommunication company competing with AT&T and Northern Telecom since 1988. Because of economic recession in 1993, many companies had to change their product strategy to overcome this unbreakable situation. Not only the largest company in this business area such as AT&T decided to lower price and revenues, but also Executone reduced its profit margin since it had recently overhauled healthcare communication system that was malfunctioning after installation. With this current situation, even though Executone showed slightly incremental Return On Sale from 0.4% in 1991 to 1.2% in 1992 in its Annual Report, this was not yet its great appreciation. After facing this crisis, Alan Kessman, the president of Executone Information Systems, questions its future business that it would be able to conquer with its rivals in the market. To achieve the highest degree of success in this industry, Kessman wonders whether any mid-course adjustment should be implemented.
u Alternatives
1. Continuing every product with more advertisement and introducing promotion campaigns
2. Dropping non-system telephone hardware
3. Dropping healthcare system and making some changes in its organization
u Analysis of each option
Continuing every product line on the market by putting more advertisement and introducing promotion campaigns is not the best solution in helping Executone to become successful in this situation since there were some flaws from this approach. With adopting its strategy, the company could gain more sales, resulting in increase in return on investors. However, this approach would definitely not only cost the company a huge amount of expense but also impact on its overall profit. Furthermore, by implementing all of current company products, the total expense was about 98.5% of total sales. Then, income before taxes for shareholders was only 1.5%. This number was fairly low (See Appendix A). Therefore, the critical issue at this time was operating decision that could control cost of good sold, sales, general, and administrative expenses (SG&A), as well as other expenses, not promotion strategy. To complicate the matter, the company might not have enough money to invest in any sales or marketing strategies because its income before taxes was practically small. Therefore, in this situation, managing cost would be considered as one of the most important factors that could increase bottom line profit and equity investorsf capital. These...