Saving Annalee: Transforming a Family-Owned Doll Company into Modern, Sustainable Business through Effective Change Management

Saving Annalee

Transforming a Family-Owned Doll Company into Modern, Sustainable Business through Effective Change Management

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Case Abstract:

Created by Deborah Streeter.
The case is ideal for courses focused on Organizational Behavior, Change Management, Family and/or Small Business Management, Leadership, Strategy, and Marketing. Although the text version of the case stands on its own, this enhanced version, including video clips of the key leader, is powerful.





ABSTRACT

The real-world teaching case follows the metamorphosis of Annalee Mobilitee Dolls new window (now called Annalee Dolls) from a family-owned business run as a cottage industry to a modern, sustainable company. The change agent is Dave Pelletier, a consultant who was originally brought into the company to help sell the business but ended up becoming the CEO and transforming the business model by shifting all manufacturing to in Asia. In the process of outsourcing, he must work with employees who are facing radical downsizing (from 300 to about 50) and manage a problematic set of family relationships (founding parents and two antagonistic brothers). Key decisions Dave faces in the case include: 1) how to transition to outsourcing, 2) how to communicate the change management strategy, 3) how to motivate people in the business who will eventually have to be downsize but are critical for the interim process and 4) how to evolve the business from a manufacturing company to a marketing company. The case is ideal for courses focused on Organizational Behavior, Change Management, Family and/or Small Business Management, Leadership, Strategy, and Marketing. Although the text version of the case stands on its own, this enhanced version, including video clips of the key leader is powerful.

VIEW ANNALEE MOBILITEE COMPANY PROFILE

DILEMMA

This section of the teaching case tells the dilemma or decision facing the decision-makers.

The Situation: A Dilemma
Dave Pelletier took another sip of his coffee, shaking his head. How had he gotten into this? When he first came to the Annalee Mobilitee Dolls (AMD) company in late 2000, it was at the invitation of the major accounting firm, Arthur Anderson, who had contacted Dave’s consulting firm, R.E. Pinard & Co, to ask for help in turning around the doll company, a cottage industry and one of the biggest employers in the state, after the departure of the controller. But after talking to the owner and founder, Annalee Davis Thorndike, plus several key members of management and reviewing the books, Dave and his partner could see that there were much more serious issues under the surface. In fact, just one month earlier, the company had considered filing for bankruptcy and there seemed to be some troubling issues between the two brothers, Younger Brother (YB) and Older Brother (OB). It was clear that Dave would have to step into the business on a more full time basis. Now after just a short time, Dave knew that to control costs and be competitive in the market, the company would have to radically change its business model, downsizing the local work force and moving manufacturing to Asia. Furthermore, given the dire situation of the business, this would not be a simple consulting fix; changes in leadership would be imperative. Translation: family members would have to be eased out the company.

Various questions were running through Dave’s mind:

  • How should he manage the change to overseas manufacturing, which would involve laying off virtually all but 50 of Annalee’s workforce, many of whom had been working there for decades?
  • He needed a few critical individuals to execute the transition, but afterward they would lose their jobs. Would it be ethical and reasonable to ask them to work towards a goal that has a negative personal outcome even though it benefits the company?
  • In the midst of this, how can he establish himself as a trusted, “authentic” leader in order to manage the dramatic changes in the business model?
  • What should he do about the ongoing dilemma of the feuds between YB and OB? Even more importantly, how can he get family members to exit the company without damaging the business?
  • Should he tell the retailers what is happening or just keep the news about outsourcing under wraps?

THE CASE

This section of the teaching case provides all the background information needed to understand the situation.  It includes a description of the main players, the state of the organization and any financial or other information needed to analyze the situation.


The Company
Prosperous Years. Annalee Davis Thorndike designed her first doll, built of felt and wire, in 1934 and slowly built a company around her designs over the next few decades, focusing on craftsmanship and a signature flexibility of movement and hand-painted smile on every doll. By the 80s,the market for collectibles like Annalee Mobilitee Dolls was in a boom phase and the company was taking off, with a loyal customer base of collectors.  Although Annalee remained the key designer and central personality of the business, by the early 80s, the two sons took over running and growing the business.  The youngest of her two sons (herein called YB, for Younger Brother) was at the helm, while the older one (herein called OB, for Older Brother) was involved in a more limited way in the business.

Video Clip: The early days of the company.
The early days of the company.

From the start there was trouble between the brothers. They had very different personalities and were continually bickering. To make matters worse, the structure of the company required that they both agree to any decisions. Each held 48% of the company (with their mother and father holding the remaining 4%) and the brothers each held a 50% stake in a real estate trust which included many of the buildings and properties used by the company. This equity structure led to paralysis when the brothers failed to agree to any particular business decision. Due to strong market conditions for their products, the business remained profitable through the 1980s, but soon the equity structure would create serious problems for Annalee.


Video Clip: Discord from the start

Pelletier02_brothersTrouble

Beanie Babies, eBay and Trouble in Paradise. The 1990s ushered in the Beanie Baby decade, with the stuffed toy collectibles creating a boom as people assumed that the collectibles would appreciate in value. The advent of online selling through eBay quickly created an easy marketplace for user-to-user exchange and fueled speculation that millions were to be made buying and selling Beanie Babies. However, the promise was never realized and the craze ended in 1999, leaving collectors, including Annalee’s customers, more cautious than ever.

Video Clip: Downturn in collectibles.
Downturn in collectibles

As the market softened, company issues surfaced at Annalee that had been previously obscured by good cash flow and prosperity. For one thing, the business never had a good handle on its costs and profitability started a strong downturn under the bad market conditions. To make matters worse, the Annalee workforce had swelled to about 400 employees during the good years, so as sales declined the financial strain was becoming apparent. In addition, the family members had taken a fair amount of money out of the company, leaving the business cash-starved just at the time revenues were plummeting. A critical factor during this downturn was the fact that Annalee had never had an outside director, someone who might have drawn earlier attention to some of the poor business practices that the company had pursued.

Video Clip: The need for outside directors.

The need for outside directors.

By the mid-90s, the family could no longer ignore the desperate straits of the company Seeking advice from consultants, they added outside board members. As the newly formed board took a hard look at the company, they had to face the elephant in the room: YB was not the right leader for the business. His strong-arm tactics with customers and employees had taken a toll on the business. In 1995, YB was asked to step down and OB became the CEO. Rather than ending the problems, this began a conflict that would eventually threaten to completely destroy the company.

Video Clip: The ownership structure complicated matters.

Pelletier02_brothersTrouble

Despite a genial nature, OB was not truly suited to his new role and the next decade under his leadership led to new problems. OB had a tendency to bring consultants in as a substitute for taking a leadership stance. Costs continued to run rampant. Disgruntled ex-employees were threatening to bring suits against the company. Profitability continued to fall. In 1998 another consultant was brought in and quickly suggested that the company be put up for sale. Although a fair offer was received for the business it was blocked by YB.

Video Clip: Sale was blocked by YB.

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Seeing the writing on the wall, the OB offered to sell his share of the company to the YB. When that didn’t work, the brothers reached a tense agreement that they would try to move forward. But the situation deteriorated and finally OB had to ban YB from the premises because of his behavior, leaving his only role serving as a major stockholder. It was clear that if YB could not get the company leadership back, he would try to destroy his brother and/or the company.

Turning point
Assessing the situation. By 2000 the company was in an untenable situation. Arthur Anderson (AA) was hired to review the financial status of the firm and they found a mess. AA ended up calling R.E. Pinard, a consulting company that had experience in turnarounds and getting companies sold. Dave Pelletier, one of the principals, was asked to come in to help bridge some financial transitions. But after talking with Annalee herself and OB, Dave told his partner that he thought deeper involvement would be the only way to remedy the situation. The company had been on the brink of filing for bankruptcy, but Dave and his partner felt with some short term work they could salvage the business and ready it for sale.

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KEY QUESTIONS

In this part of the teaching case, the key discussion questions are outlined. These questions do not have black and white answers and are intended to guide discussion rather than lead to a specific response.


Key Questions
To summarize, Dave faced the following questions:
  • How should he find the right offshore facility and build a working relationship?
  • What things would have to go right for the shift to outsourcing to work fast enough to save the company?
  • How should he manage the change to overseas manufacturing, which would involve laying off virtually all but 50 of Annalee’s workforce, many of whom had been working there for decades?
  • He needed a few critical individuals to execute the transition to the offshore manufacturing, but afterward they would lose their jobs. Would it be ethical and reasonable to ask them to work towards a goal that has a negative personal outcome even though it benefits the company?
  • What should he do with a sales model that was proven to be ineffective in recent years?
  • What was the right way to approach the retail and wholesale markets under the new business model?
  • How should he approach the bank with the 24-month plan, which would require considerable financing?
  • In the midst of this, how can he establish himself as a trusted, “authentic” leader in order to manage the dramatic changes in the business model?
  • What should he do about the ongoing dilemma of the feuds between YB and OB and how can he get family members to exit the company without damaging the business?
  • Should he tell the retailers what is happening or just keep the news about outsourcing under wraps?
  • Once the company is no longer manufacturing, what is the right business model, size and focus?

Situation Assessment


CASE OUTCOME

This section of the teaching case, sometimes called the “reveal,” is intended for the eyes of the instructor only before the class discussion but can be shared with the participants after the group has analyzed the situation. Here we find out “what really happened.”


Reviewing the change in profitability
In the 80’s and early 90’s, Annalee was doing about $15 million dollars in revenues with a $1.5M on the bottom-line, much of which was divided up among family members. When YB was asked to step aside in 1995, revenues had fallen to $8 million and the profitability was probably a couple hundred thousand dollars. From 1995 through 2000, the business moved into a loss situation as revenues plummeted. For example,in 2001, revenues were $5 million with $2 million in losses. Dave got the costs under control, downsized the company and built back up the customer base and by 2006, revenues were back to about $9 million dollars, and profitable on the bottom-line. By 2011, the company had grown to $12M in sales with $1M in profits.

Why did Dave accept the responsibility of taking on the CEO role at Annalee?
Given his other options, such as staying on at R.E. Pinard, Dave took a real chance by joining Annalee. Two things motivated his decision. One was personal: Dave had lost his wife to breast cancer and was bringing up his children now as a single parent. Having his workplace close to home was essential and the early days consulting with Annalee provided a flexible workschedule, with a short commute. Dave also had a strong feeling that he could bring some needed structure and organization to the company in order to see it recover and thrive.


Video Clip: Motivation for saying yes to the Annalee consulting gig.

Pelletier27_motivationForYes


INSTRUCTOR MANUAL

This section of the teaching case is only for instructors. It serves as a guide to the best settings for the case and provides ideas for guiding discussion.


Teaching Notes
Potential uses of the case and relevant audiences
The case is suitable for use in courses focused on Organizational Behavior, Change Management, Family and/or Small Business Management, Leadership, Strategy, and Marketing.


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