Contract electronics manufacturer Solectron struggled financially and operationally for some time. Depending on who you talked to prior to the announced Flextronics acquisition of Solectron, over the years Solectron’s ‘turnaround story’ came to be viewed by those familiar with the industry as either a never-ending saga or a manuscript being written as it was played-out.
Despite cutting costs and winning (and in some instances, buying) business programs, Solectron just couldn’t seem to get gross margin leverage. Now that Solectron’s fate is sealed, what lies ahead in the immediate future for Flextronics?
For starters, Solectron has a legacy IT system that should have been buried long ago. To paint a clearer picture, Solectron just doesn’t have a legacy ERP platform…it has multiple ERP platforms. The information contained in this labyrinth needs to somehow mash-up with Flextronics’ system. As small as Solectron is today (compared to what it was, say, six years ago), it’s still too big of a company for this to be an easy thing to do…even for Flextronics, one of the leading companies in industry in terms of execution.
On this execution note: over the years, the contract manufacturing industry and the investment sector both seemed to have become numbingly accustomed to Solectron’s constant and ever-recurring ‘one-time charges’. This chronic problem, stemming from the Company’s inability to execute, points directly to Solectron’s senior and junior-level management.
Execution is undeniably a differentiating factor. As the contract manufacturing industry becomes increasingly more competitive, it is becoming increasingly more important for players in industry to execute well.
“I.D. please!”
Once Solectron’s IT part is figured out, what about the people? Not everyone is Flextronics material. A-level managers most often hire other A-level managers. This was often the case with Flextronics for some time. However, there was point during Flextronics’ growth period where the company was unable to focus on this as much and the culture suffered for it, for a while.
Meanwhile, B-level managers tend to hire C-level managers. The point being, competent managers (A-level) are usually able to attract and retain equally competent managers.
Whereas, B-level managers cannot typically attract A-level talent and therefore, hire C-level managers that are usually not motivated and not smart enough to know they’re reporting to a B-level manager. C-levels often remain in place, sometimes for years (or until an acquisition)…not growing personally or professionally and, not capable of challenging company systems / processes and its people to help organizations improve. There’s more of a drain than a gain.
In these situations, companies find themselves with key managerial personnel surrounding themselves with inadequate people so they themselves are not found out to be inadequate. This management ‘culture’ tends to hide problem managers. (Jabil’s unique matrix style management structure helps to quickly recognize any manager not pulling his own weight).
In a 2005 interview with former Flextronics CEO Michael Marks, Marks indicated that a [company] culture is built up over a very long time. “Our operating executives all have the same view, presumably everyone hires in their own image and as long as the company works, that tends to sustain it”, said Marks.
Current Flextronics CEO Mike McNamara is known for his charm in gaining organizational consensus and clear leadership and execution style. While Mr. McNamara tends to keep a lower profile than his predecessor, it’s probably safe to say Flextronics’ culture will likely be enhanced further over time under his leadership.
In the meantime, Solectron never really seemed to develop a unique culture of its own. It also has layers of B-level managers. Hence, the execution issue.
As with all acquisitions in any industry, redundant functional groups are closely evaluated to help separate the wheat from the chaff when two companies become one. There will no doubt be some functional overlap with the acquisition of Solectron by Flextronics.
Business development (sales) and finance are just two areas often hit hardest when revised personnel requirements are determined for larger companies formed from acquisitions. In Solectron’s case, it’s important to note business development is responsible for driving top-line growth while finance is responsible for helping company managers determine if/how/when the company is meeting its bottom-line numbers.
If Flextronics wants to at least ‘maintain’ its culture of execution, bouncers at the door will need to carefully check Solectron credentials before allowing just anyone to enter the party.
Click here for more analysis on the acquisition.
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