My Criticism of GAI-Tronics Management's Competitive Strategy

Ronnie Oldham
Criticism of GAI-Tronics' Strategy in the early 1990's

GAI-Tronics Corporation was a $30 million company with tremendous share in its traditional markets when I joined the West Region Sales Team in 1990. Technology was rapidly obsolescing the company's mainstay, the Page/Party product line, and revenues were steadily declining, despite regular price increases. In response, management pursued several commonly accepted mature market strategies:

NOTE: This was written in 1998 (a couple years after I left GAI-Tronics) as an academic exercise. GAI-Tronics had already been acquired by Hubbell and many changes were already underway. Although my comments did irritate several remaining GAI-Tronics employees, they were not intended to "get back" at GAI-Tronics in any way. They were designed to demonstrate my personal understanding of the bigger issues and provide an insight into what I would have done differently. GAI-Tronics is a completely differently company now and the following comments should be viewed only as a historical case study.

Cut Costs
Efforts to lower costs that destroy employee moral and loyalty are seldom worth the price. VP Dan Peters initiated several unsound cost-cutting policies, including a surprise $10,000 cut in base pay, which eventually cost Dan his job. Consolidation of product lines and the introduction of parts kits were a good idea. Refusing to sell board-level components, when much of GAI-Tronics competitive advantage came from customers being able to perform their own repairs, was a bad idea. Nowhere was cost-cutting more evident than in the compensation plans. Management figured that if pay was cut and no one quit, they could get by with cutting some more. Bad move. GAI-Tronics lost many high-quality career employees and those that remained won't forget. Generally, sales and marketing efforts were viewed as an expense and salespeople as replaceable. A set amount was budgeted rather than a percentage of revenue. VP Dan Peters once bragged about trimming sales costs during a national sales meeting. Of course, I called him on it. The compensation plan did not encourage or reward sustained high performance. Reps that achieved above quota performance were thoroughly spanked with higher quotas and bonus targets. I know of several career employees that increased sales over the prior year and received less pay. The maximum bonus was attained at 12 percent growth from the previous period. Though slacking off or sandbagging are completely against my nature, whenever President Ed Smith would ask about my numbers, I would confidently forecast 12.01 percent growth. I am proud of this because the accuracy of my forecasting confirmed my close and thorough understanding of my markets and my customers. I thrived under Dan Peters and his cost-cuts because I understood the constraints and the compensation scheme thoroughly. I consistently used the system to my advantage, in order to protect my customers and my personal income. When I am able to affect policy, employees will never be placed in this position.
Leverage Existing Resources
GAI-Tronics operates a world-wide sales organization with strong relationships with all major architectural/engineering firms, major contractors, and management of industrial process and manufacturing facilities world-wide. President Ed Smith recognized the opportunity for adding new products to existing lines and would often comment on adding more goodies to our bag. Still, products were often selected with poor strategic fits and agreements negotiated without input from the field. Sales reps were then asked to sell the new lines to existing clients. So many products were discontinued or dropped after sales reps made commitments to customers, that many became "gun shy" about introducing any new products or recommending them to their customers. Comments regarding the lack of corporate commitment echoed throughout the organization. Good strategy - bad implementation.
Acquire Existing Competitors
GAI-Tronics had only one major competitor in the 1980's, FEMCO. The "Beat FEMCO" battle cry had long been a key component of the company's culture and mission. In reality, FEMCO was only a token competitor. GAI-Tronics compensation plan actually induced sales reps to sacrifice commission by matching FEMCO discounts in order to meet equipment booking quotas, a policy which I strongly opposed. They were weak and could only win orders through drastic price-cutting. Their sales organization was dominated by disgruntled ex-GAI-Tronics employees with an ax to grind. Frankly, I was shocked to learn of the $7 million acquisition. FEMCO had no substantial assets, technology, or good will. It was a textbook mature market strategy that demonstrated no direct knowledge of the company's customers and markets. In less than a year, FEMCO's best price market space had been filled by Stentophone and others. Rather than achieving market consolidation and growth, shareholder's investments were squandered. The Elemec and Instrument Associates acquisitions were successful from a revenue perspective. Still, they are far from reaching their potential. Parent company, Salient 3's other acquisitions have also been less than stellar: XEL Communications , TEC Cellular, SAFCO Technologies
Expand International Markets
International sales drove much of GAI-Tronics growth during the 1990's and management accurately recognized the growing importance of global markets. After Don Borden replaced Jay Cunningham, there were significant improvements in the quality of the international sales organization. Still, the old international/domestic squabbles over commission splits divided the company. The domestic organization did not share in the international vision. European acquisitions had little effect on domestic product lines and there was little visible evidence of technology or resource sharing. GAI-Tronics owns foreign companies. It is still not an international company. I regularly stated my desire for a transfer to international during my whole tenure with GAI-Tronics. Frankly, being passed over for an international opportunity was ultimately the reason I left the company to pursue additional education.
Develop New Products
GAI-Tronics' management realized the need for new products and new markets, they simply didn't know their customers and did not truly embrace real change. GAI-Tronics was notorious for testing the water by printing up cut-sheets before product was actually available to sell. New products inspired by the engineering department and lines from other manufacturers routinely failed and were promptly discontinued. Change was forced down GAI-Tronics throat by the Western Region Sales Team and my personal role was significant. GAI-Tronics had traditionally sold their line of paging and intercom equipment to high-noise industrial facilities where rugged and durable equipment is required. Only a few of us understood how our systems were or could be utilized during an emergency. My manager, Bruce Wedgwood, encouraged us to learn about OSHA and NFPA. Several of us became certified in fire alarm systems. We started calling on safety and fire personnel, in addition to engineers and plant managers. The pivotal point came when David Kruger sold a custom $1.6 million alarm system to Phillps Petroleum. With an order in hand, GAI-Tronics was forced to develop a product customers wanted, although Dave's commission was reduced substantially (The famous Kruger clause). The result was Advance and Smart Series. A sales contest was announced and I promptly turned in two orders, Weyerhaeuser and AES Shady Point. GAI-Tronics is now in the industrial alarm business. Nonetheless, change is still impeded and occasionally thwarted by budget priorities and a pervasive reluctance to change throughout the organization.

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