Aligning culture and strategy at A.P.

Nichols

Strategy Implementation - Case Study Analysis

EPGP 03, IIMK Kochi Campus

Mudit Laveena Mathew Mridul Vijay

Nithin Paul Cherian Kishore Gopinath Vinod D

The Industry
MRO(Maintenance, Repair, Overhaul) Supply Industry

Acts as stockists for factory supplies with a 5-10% markup for screws, tapes, inks, and bearings

1000s of distributors, but top 15 controlled half of $60 Billion market

Large distributors carried more than 5 Lakhs items in their regular line-up

Earned profit by purchasing products in bulk and selling them via various tiers of sales agents

Distributors assigned CSRs (Client Service Representatives) who understood customers unique needs

Customers remained with CSRs instead of switching distributors due to high service levels offered by
CSRs
About A.P. Nichols
Chicago based medium sized distributor of Industrial Suppliers

Goal - To become one among the top 10 distributors in country

25 Offices around US & 300000 different SKUs

Sold mainly fasteners, bearings, abrasives and cleaning supplies for factories

80 Inside Sales Agents (ISA) to take orders by web, fax or phone

Stuck with technology focussed ordering systems for customers ease of use, but later built a CSR
team when growth rate slowed

CSRs were given 70% of fee earned instead of industry standard of 50% and allowed CSRs to
determine the level of sales infrastructure and support required
Challenges facing Nichol's strategy to become one of the top 10 distributors?
Business Environment
Entry of new suppliers-30% increase in number
of suppliers
Entry of new distributors-small players,
competing aggressively on price
Pressure on distributors to deliver better
service at lower cost
High demand for talented and proven CSRs;
CSRs generated 70% of business
Poor economic situation and dried up capital
markets did not offer any merger opportunities
Company situation
Requirement of larger CSR team to serve
customers (internal processes and cost
savings have improved)
Lack of communication and coordination
between ISA and CSR- no referrals,
compensation to ISA for loss
CSRs working for their own benefit - 70% net
revenue and independent operations
Alignment of CSR team to strategy
Uplifting the CSR team to best in class
Analysis based on the Conceptual Model
Desired position
1. Low effectiveness of 4. High effectiveness of
Strong strategy implementation strategy implementation

Strength of organisational
culture 2. Moderately low 3. Moderately high
Weak effectiveness of strategy effectiveness of strategy
implementation implementation

Low High

Congruence of organisational culture with

organisations formal reward structure

Current position
The extent of congruence of organization culture and the organization's formal
reward system?

Nichols have a weak organisational culture

Behavioural responses of members are not similar-non consistent, contradictory and not
known by members (Eg:- ISA and CSR referrals)
Not directed towards a common goal- Some CSRs work for their own benefit

Weak culture have minimum effect on members and hence formal reward structure exert
greater influence on behaviour
Congruence of organisational culture and reward Congruence of organisational culture and
structure reward structure
Current position- Low congruence Desired position- High congruence

50/50 revenue share - emphasis on

70/30 revenue share gave the CSRs autonomy
investing in support infrastructure
in controlling their expenses- they decided the
kind of clients to be pursued, what products to
Corporate controls- account records,
offer, how to manage accounts
account reviews, product offerings
CSRs had no idea how the firm wanted to do
business Promoting referrals by ISA to CSRs
Client's best interest not served- potential
client that can be served by CSR not referred This will lead to CSRs, who do not align
by ISA due to fear of loss of compensation and with the strategy, leaving the organisation
lack of confidence in CSRs ability to manage
the client Focus on using formal rewards as means
CSRs did not contribute back in form of to manage the culture
referrals
Since culture is weak, culture will not send
a competing set of rewards
Analysis based on the Conceptual Model
Desired position
1. Low effectiveness of 4. High effectiveness of
Strong strategy implementation strategy implementation

Strength of organisational
culture 2. Moderately low 3. Moderately high
Weak effectiveness of strategy effectiveness of strategy
implementation implementation

Low High

Congruence of organisational culture with

organisations formal reward structure

Current position
Moving towards a strong culture and high congruence of culture and reward
have certain drawbacks:

In highly unstable environment where strategy changes quickly, organisations

risk having strong culture and low congruence of culture and rewards, leading
to low effectiveness of strategy implementation

They have to break the strong culture, foster congruence in culture and formal
reward structure and then strengthen the culture
Which of its 'Options for Change' should it focus on and why?

The Company as a whole being in Quadrant 2, where the overall culture and the
congruence of the culture with the companys reward structure are weak and low.
Therefore the focus can be on the Compensation and later Partnering with ISA to
move the company in the path Quadrant 2 -> 3 and eventually to 4.

The focus on Compensation therefore will help have the reward structure in
congruence with the companys strategy and the larger organization culture.

The Partnering with ISA will bring in the cultural change in the CSR to align them to
the strategy of the Organization for better customer service and an integrated
operations strategy
How could Klein build a CSR team that was strategically aligned and culturally
congruent with its strategy for building out its integrated operations?

This would require a long term vision and consistent implementation of strategy.

The company needs to start fostering congruence of culture with reward

structure.

The change in the reward structure needs to be offset with cultural change to
ensure that the company does not fall into the quadrant of very low effectiveness
of strategy implementation

The CSR team needs to be developed to incorporate newer members who are
groomed in the organization culture and can ensure strategy continuity.