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Pinnacle Machine Tool Company Case Study

Pinnacle Machine Tool Company
Don Anglos had to decide whether to trust his gut or his head, and he had to make that decision by next week's board meeting. Either way, he knew he was bound to make at least a member or two of his senior management team unhappy.

The question at hand was whether Pinnacle Company, the small, publicly held Indiana-based machine tool company he led as CEO, should attempt to acquire Hoilman Inc. Hoilman was a company known for the cutting-edge sensor technology and communications software it had developed to monitor robotics equipment. Anglos had just heard a credible rumor that one of Pinnacle's chief competitors was planning a hostile takeover of the company. Coincidentally, Don Anglos knew Hoilman well because he had recently held exploratory talks about the possibility of a joint venture designed to develop similar technology capable of monitoring a broad range of manufacturing equipment. The joint venture did not work out. But now, by acquiring Hoilman, Pinnacle could develop software that transmitted real-time information on its customers' equipment, enabling it to set itself apart by providing top-notch service far more sophisticated than its current standard maintenance and service contracts.

Don, a hard-charging 48-year-old, firmly believed that bigger was better. It was a premise that had served his Greek immigrant father well as he built a multi-million-dollar business from nothing by acquiring one commercial laundry after another. The CEO had to admit, however, that getting bigger in the machine tool industry, currently a slow-growing sector facing increasing competition from low-priced foreign manufacturers, was going to be a challenge. Still, he had been convinced to sign on as Pinnacle's CEO four years ago not only because the company had relatively healthy earnings, but also because his sixth sense told him the company had growth potential. He hadn't been entirely sure where that potential lay, but he was a problem-solver with a proven track record of successfully spotting new market opportunities. In the past, he acted on hunches, which had paid off handsomely.

So far, Anglos had managed to modestly nudge Pinnacle's revenue growth and increase its market share through aggressive pricing that successfully kept customers from switching to several potential foreign rivals. But those moves inevitably chipped away at the company's healthy profit margins. In any case, he recognized he'd taken the company down that road as far as he could. It was time for a real change in strategy. Instead of concentrating on manufacturing, he wanted to transform Pinnacle into a high-tech service company. Such a drastic metamorphosis was going to require a new, service-oriented corporate culture, he admitted, but it was the only way he could see achieving the growth and profitability he envisioned. Acquiring Hoilman looked like a good place to start, but this option would be gone if Hoilman sold out to another firm.

Jennifer Banks, services division head, was enthusiastic about both the acquisition and the new strategy. "Acquiring Hoilman is the chance of a lifetime," she crowed. Not all the senior managers agreed. In particular, CFO Sam Lodge advanced arguments against the acquisition that were hard to dismiss. The timing was wrong, he insisted. Pinnacle's recent drop in profitability hadn't escaped Wall Street's attention, and the further negative impact on earnings that would result from the Hoilman acquisition wasn't likely to make already wary investors feel any better. But then Sam shocked Don by offering an even more fundamental critique. "Getting into the service business is a mistake, Don. It's what everybody's doing right now. Just look at the number of our competitors who've already taken steps to break into the services market. What makes you think we'll come out on top? And when I look at our customers, I just don't see any evidence that even if they wanted to, they could afford to buy any add-on services any time soon."
With such a big decision, Don's head had to agree with Lodge's position that was based on his usual CFO thoroughness with number-crunching. But his gut wasn't so sure. Sometimes, he thought, you just have to go with your instincts. And his instincts were champing at the bit to go after Hoilman.
(Daft, Richard. Management, 9th Edition. South Western Educational Publishing, 2/18/09. pp. 234 - 235).

1. What steps in the decision-making process have Don Anglos and Pinnacle taken? Which ones have they not completed?
2. Which decision-making style best describes Don's approach: directive, analytical, conceptual, or behavioral? Which style best describes Sam Lodge's approach?
3. Would you recommend that Pinnacle attempt to acquire Hoilman? If so, why? If not, what alternatives would you suggest?
SOURCE: Based on Paul Hemp, "Growing for Broke," Harvard Business Review (September 2002): 27-37.
(Daft, Richard. Management, 9th Edition. South Western Educational Publishing, 2/18/09. p. 235).

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1. What steps in the decision-making process have Don Anglos and Pinnacle taken? Which ones have they not completed?
There are several steps in the decision-making process that Don Anglos and Pinnacle have taken. First Don has identified the problem. He has recognized the opportunity of buying Hollman. Further, Don has deliberated on how this acquisition will make a difference to his customers. He has also gathered information about his competitors who may buy Holman. He has gathered information about other aspects of the acquisition. The third step in decision making taken by Don is that he has analyzed the situation. He has evaluated alternate courses of action that are available to him. The fourth ...

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