As Stan Shih resumed his role as CEO in 1992, after the board had unanimously declined his resignation, he had the responsibility to rethink Acers management philosophy, the organizational model and the underlying business concepts. The most important decision that Shih was about to take a decision that could make or break the brand image of Acer, was whether or not he should allow the loss making regional business unit of Acer Acer America Corporation, to go ahead with the initiative of launching a new product and also ensuring the products global rollout.
Under Stan Shih, Acer had certain Organizational philosophies that triggered its growth not only in the local market but also acted as a catalyst for sales growth globally. Stan Shih was aware of the capital constraints that Acer faced and to make optimum utilization of the resources available became his primary objective. He leveraged the principal of frugality describing it as a poor mans philosophy to improve Acers gross margins. Ensuring and advertising the importance of receiving cash payment quickly and avoiding the use of debt was important to maintain the liquidity.
The Acer 1-2-3 principle laid down by Shih broadcasted the importance of Customers, employees and shareholders in that order of priority. Contrary to the principle of tight personal control held by his Chinese counterparts, Stan Shih believed in hands-off style management. He trusted his employees to act in best interests of the firm and encouraged delegation and authority with responsibility. The idea of joining forces with the small players who believed in the commoners culture led to Acers early successes.
The financial scenario for Acer under Stan Shih improved from a resulted net income of $0. Million in 1984 to $26. 5 Million in 1988. The gross margin remained high due to the principle of frugality and the ratio between current assets to current liabilities remained positive which was reflected by the increasing stock prices. With the changing market scenario in terms of competition and the resulting price wars, Acer faced another problem of shortage of management experts. To combat this obstacle, Shih recruited new managers who were perceived as the Paratroopers or the intruders by the existing employees.
Decline in the market for mini-computers and subsequent launch of a new product Concer to fight with the falling sales could only add to the overall losses. Reduction in prices by the competitors resulted in reduced margin for Acer and the company slowly found it drifting away from the commoners culture. The appointment of Leonard Liu as the CEO and Chairman of AAC led to more problems for the company. The acquiring of Altos brand caused more financial problems for Acer. The employees of the company projected resentment to Leonards tendency to spend lavishly that curbed the companys initial establishment of the principle of frugality.
They also opposed to his management style, which was in complete contrast to Shihs family-oriented approach. Anticipating a disastrous 1991 result, Shih offered resignation, which was unanimously refused by the board. Leonard Liu resigned in May 1992 that meant the companys day-to-day functions were back in the hands of the founder. Acers recent strategies had failed. The management style was altered. It suffered from financial and management related problems. Stan Shih, however, chose to view the losses as learning and began to rethink the fundamentals.
Shih was confident of a comeback with his newly established vision of Global Brand, Local Touch philosophy and models like the Client Server Organization Model and The Fast Food Business Concept. Where the Global Brand Local Touch concept had the objective of turning Acer into a global organization without compromising on the deeply planted local roots, the Client Server Organization model followed the principle of leveraging ideas, principles and initiatives through Regional Business Units or Strategic Business Units without having the need to acquire permission or grant from the company head quarters.
The Fast Food Business Concept focused on increasing sales margins through savings on logistics and inventory costs. Unsurprisingly, the Midas touch of Stan Shih still worked and the company reported a return to profit in 1994 after three years of losses. The companys turnover almost doubled and its capacity to pay off its arising liabilities through its current assets improved immensely. Stan Shih was instrumental in helping ACER fight with its financial and strategic problems.
The company improved its financial performance and the numbers were back in green after 3 years. The current asset to total liabilities ratio was slowly improving but it wasnt at its best yet. The stock price was far away from what it was when the company was at its peak. Hence, there still were damages, which, if not repaired, could affect the company drastically. Ideally, working towards an improved financial and management structure should be the companys area of focus under the present circumstances. To summarize, Acer is in a recovery mode and being aggressive is a bold step and could hurt them.
The reasons why Acer could look beyond the Aspire project are listed below: 1. Firstly, the overall cost of initiating and running the Aspire Project is high. The return on investment is something that cannot be predicted with precision. Any deviation from the set earning benchmark would cost the company a great deal. 2. Secondly, with the growing competition, it is highly probable that Acers rivals launch a product similar to Acers Aspire. If the competitors manage to launch the product before Acer, that could hamper the projected sales figure for Acer. 3.
Thirdly and most importantly, Acers Production expertise is located in Taiwan whereas AAC is a regional business unit that has no technical know-how on developing new products. Coordination between areas as distant as Taiwan and North America could prove to be a herculean and an expensive affair. 4. Also, if this project does go live, it would mean that the other Regional Business Units would also want to re-design and re-configure depending on the needs of their specific regions. This would beat the principle of economies of scale and increase the cost for the company.
However, every project has its pros and cons and the scenario is similar with the Aspire Project. This project, if successful could make up for all the losses and financial crunch that the company underwent over the past few years. If the project is given a green signal by Stan Shih, it could have the below mentioned implications:
1. It would increase the profitability and the market share of the firm. This would give a boost to Acers brand name and help them re-establish themselves as one of the market leaders. 2. With an increased profit, the company could improve its capacity to meet the current liabilities with ease. This would restore the Investors trust in the company. 3. If Acer could manage to be the first one to launch the product in the market, it could gain significantly by having the first movers advantage. 4. As projected, the fixed investment that would come along with this project could be recovered within the first few months with the generated sales. 5. In order for Acer to have an edge over its competitors, it is important that they come up with an innovative and a customer specific product. With the launch of Aspire, there is a possibility that the company meets that objective.