Those massive cuts at Sunbeam may leave wounds that won't heal

The Outlook

November 17, 1996|By Sean Somerville

ON TUESDAY, Sunbeam Chairman Albert Dunlap lived up to his nickname of "Chainsaw Al" when he announced he would cut about 6,000 of the company's 12,000 workers, close 39 of its 53 plants and other facilities and eliminate 10,000 products -- nearly nine of every 10. The executive also said he would restructure Sunbeam within 45 days and double its sales to $2 billion by 1999.

Dunlap has tried this strategy before: as chief of Scott Paper, he laid off more than 10,000 employees and sold more than $2 billion in assets before selling the company to Kimberly-Clark.

Can Dunlap's job cuts -- likely the highest-percentage corporate job eliminations ever -- and the rest of his plan turn Sunbeam around?

Don R. Graber

Former president of Black & Decker Corp.'s household products, now president of Huffy Corp.

If his plan is to run the business on an ongoing basis, my guess is his plan will not work. If his plan is to chop heads and sell the company off, he'll probably do it.

I don't think there's 50 percent fat in Sunbeam. And if you look at what happened at Scott Paper, he slashed heads and then sold the company.

This looks to me like a move to position the company for sale in the not-too-distant future. Some of the reductions, I'm sure, probably make a lot of sense. But the magnitude of 50 percent is not a move that is going to serve the company well. And, having spent 15 years in the industry, I think there's no way that he will reach the $2 billion sales goal.

Every one of Sunbeam's competitors is calling on Sunbeam's customers. This is going to be highly disruptive.

William Werther

Professor of management, University of Miami, Business School

What we've seen from research is when you have substantial and large cuts, usually the effect is to improve the profitability in the short to medium run.

The real question is within three to five years whether they will have the remaining staff and human resources capabilities to introduce new products, make marketing innovations, create new alliances and make other strategic moves.

We saw the same kind of move in 1974 and 1975 with Chrysler. The effect was that five years later, they weren't able to introduce the new fuel-efficient cars that their competitors were making.

The football coach George Allen used to say the future is now. But the real risk of cutting deeply is that you sacrifice the future. The flip side of this is that Sunbeam, with 12,000 employees, may have been headed for bankruptcy. Maybe he didn't cut 6,000 jobs. Maybe he saved 6,000 jobs.

Susan Gallagher

Analyst, NatWest, Securities

I think what they've done is positive and that they can live up to their promises. I don't think Al Dunlap makes these kinds of statements lightly.

When companies make different product lines and different models of products, what happens is that all the proliferation doesn't result in sales. The products just take up shelf space.

The company will reduce this huge proliferation of products and have essentially two brands. Oster will be the premium brand and Sunbeam will be the value brand.

I think the company is properly sizing its cost structure, which was way out of line. Capacity utilization was in some instances well below 50 percent. Even with fewer plants, they will have the capacity to support a higher number of sales.

A number of similar companies have executed restructuring plans such as Rubbermaid, Stanley Works, Dial Corp. and Black & Decker's appliance business.

Sunbeam has performed poorly in the last year and a half. Radical measures were necessary to ensure the viability of the company.

Alan Downs

Management consultant and author of "Corporate Executions"

Whether Al Dunlap can turn Sunbeam around depends on how you define turnaround.

Dunlap's definition is to increase returns for shareholders. Unfortunately, the way he does that is on the backs of workers and communities. He moved Scott's headquarters from Philadelphia to Boca Raton, Fla., the point being that two entities lost. The community of Philadelphia was badly hit, and thousands of employees lost their jobs.

Stockholders got a great return when the company was sold. And Dunlap walked away with over $100 million in stock options and other compensation for about 18 months of work.

If you call that a turnaround the way Al Dunlap calls it a turnaround, you could say he's wildly successful. I don't call it a turnaround, and I don't think communities and employees call it a turnaround.

It is impossible to say in 18 months whether a company the size of Scott Paper or Sunbeam has been turned around. If you look at the research, Dunlap is getting a quick return at the expense of the long-term success of the company.

Pub Date: 11/17/96

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