H.O. Penn: ‘Managing By Values’ Brought the Company Back, But Now Will it Guide its Growth?

Abstract

In 1991, Tom Cleveland, CEO and owner of the Caterpillar dealership, H.O. Penn Machinery Company, Inc., found himself contemplating the sale of his poorly performing business, which had been in his family for nearly three decades. After he was unable to reach an agreement with a particular buyer, however, Cleveland re-committed himself to H.O. Penn, determined to turn around its fortunes. He introduced a management system called ‘Managing by Values’ (MBV), with the objective of infusing explicitly stated values and goals into every facet of the company's operations. At first, employees embraced the new system. Over the next 15 years, both company morale and financial performance improved markedly. Perhaps nothing demonstrated H.O. Penn's emerging cohesiveness more powerfully that the firm's nationally recognized work to rapidly supply and support heavy equipment and generators in the rescue, recovery, and restoration efforts in the aftermath of 9-11.

In 2006, Cleveland faced pressure to grow the business over the next five years. In view of H.O. Penn's recent performance, Caterpillar had high expectations for future growth, pressuring the company for even faster expansion of market share. Cleveland considered a number of options to meet Caterpillar's and his own growth expectations, and speculated which one(s) would best fit with ‘Managing by Values.’

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Exhibit 1: H.O. Penn Values Statement

Figure

Figure

Exhibit 2: Consolidated Statements of Income – H.O. Penn and PennRents

For Years Ended December 31, 1991–December 31, 2005

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Sales

150,364

152,526

176,581

206,940

209,083

184,393

209,196

205,243

241,216

322,315

360,463

275,761

285,107

340,191

327,527

Cost of Sales

118,393

120,591

144,525

169,257

173,753

147,253

165,979

162,539

190,358

258,377

280,133

206,365

213,895

257,505

243,686

Gross Profit

31,971

31,935

32,056

37,683

35,330

37,140

43,217

42,705

50,858

63,938

80,330

69,396

71,212

82,686

83,842

% of Sales

21.3%

20.9%

18.2%

18.2%

16.9%

20.1%

20.7%

20.8%

21.1%

19.8%

22.3%

25.2%

25.0%

24.3%

25.6%

Expenses

34,061

30,339

29,841

32,304

31,160

31,267

36,582

34,474

40,333

47,584

58,419

61,060

58,213

65,242

70,764

% of Sales

22.7%

19.9%

16.9%

15.6%

14.9%

17.0%

17.5%

16.8%

16.7%

14.8%

16.2%

22.1%

20.4%

19.2%

21.6%

Operating Income

(2,090)

1,590

2,214

5,379

4,171

5,872

6,635

8,231

10,524

16,353

21,912

8,319

12,999

17,444

13,077

% of Sales

−1.4%

1.0%

1.3%

2.6%

2.0%

3.2%

3.2%

4.0%

4.4%

5.1%

6.1%

3.0%

4.6%

5.1%

4.0%

Exhibit 3: Pathfinder Survey Results

Figure
2005 Higher Strengths

2005 Rank

Item

2005

% All

2004

% All

1st

I know what actions are expected of me in my job as an employee in our company.

97%

96%

2nd

I normally understand what I am expected to do when assigned a work task.

95%

96%

3rd

I know who is responsible for supervising and evaluating my work performance.

94%

93%

4th

I usually understand what is required of me.

93%

93%

5th

People in our area consistently try to do the right thing.

90%

86%

6th

I enjoy working for an organization like ours by comparison with other ones.

90%

88%

7th

I believe most supervisors and managers in our organization are primarily interested in results.

90%

86%

8th

My present job responsibilities keep me fully occupied in meaningful contributions to our company's goals.

90%

92%

9th

My work is personally satisfying to me.

89%

90%

10th

Employees in my work unit genuinely care about providing good performance.

89%

88%

2005 Higher Concern Items

2005 Rank

Item

2005

% All

2004

% All

1st

I perceive many people in my work unit who are frustrated.

46%

53%

2nd

Our work are is congested and difficult to effectively work in.

41%

41%

3rd

Major variations in my workload are not reduced because of ineffective planning.

40%

45%

4th

Changes in my area are not typically well planned.

39%

49%

5th

A backup individual or process does not exist that can satisfactorily perform my job functions in an emergency (such as illness, work overload).

35%

37%

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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