Sunbeam and "Chainsaw Al"
Second Step: Cut Back
The second of Dunlap’s four simple rules is to cut back to the lowest costs. All of the employees at Sunbeam knew of Dunlap’s reputation for ruthlessly eliminating jobs. True to his reputation, one of the first areas of cost slashing was in payroll. According to Dunlap, (p. 283) "Sunbeam’s employees wanted a leader and knew things had to change. Employees want stability. Restructuring actually brings stability, because the future is more clear." What people want and need is job security and knowing his reputation probably did not make the employees feel secure.
The premise of wanting and needing security relates to psychologist Abraham Maslow’s hierarchy of needs, theorizing what motivates employees to perform. The theory states that all people have five basic needs and strive to satisfy those needs in a hierarchical manner. These needs can be satisfied through various means, but each need must be met before a person will move to the next level in the hierarchy. Security needs are listed as the second in the hierarchy of needs to be satisfied and relate to protecting oneself from physical and economic harm. The employees’ security needs were being threatened and economic harm was about to occur for many of the employees at Sunbeam.
As expected, and true to his reputation, layoffs occurred. After less than four months as the chairman and CEO of Sunbeam, "Chainsaw Al" announced plans to eliminate half of the 12,000 worldwide employees. He did not stop there; layoffs affected all levels of Sunbeam’s employees. Management and clerical staff positions were cut from 1,529 to 697 and headquarters staff was cut by 60 percent, from 308 to 123 employees. It was around that same time that the share prices rose to the mid-20s and one of the original investors, Michael Steinhardt, sold his shares and divested himself from Sunbeam altogether.
Another method used by Dunlap to cut back to the lowest costs was to reduce the number of SKUs from 12,000 to 1,500. When Dunlap first took the position at Sunbeam, it had thirty-six variations of styles and colors of a clothes iron! Variation allows for differentiation, which is an acceptable strategy in business, but having thirty-six variations of a consumer product such as an iron was unnecessary and costly. Companies need to differentiate themselves from the competition in areas that are not easily duplicated or they end up competing on price alone. Dunlap therefore chose to pursue service as the area to differentiate Sunbeam from competitors in the appliance business.
The elimination of 10,500 SKUs enabled Dunlap to eliminate unneeded factories and warehouses, which was another cost-savings method. He eliminated 18 factories, from 26 to 8 worldwide, and reduced the number of warehouses from 61 to 18. The layoff of the thousands of employees, coupled with the reduction of SKUs, factories, and warehouses made it possible to reduce the number of headquarter locations. The six headquarters located throughout the country were consolidated into one facility located in Delray Beach, Florida. After the cost cutting strategies had been identified and implemented, the third step of Dunlap’s four simple rules began.