Ajax Minerals

Ajax Minerals is a U.S. mining company.  Recently, it was operating at full capacity, but there were problems on the horizon.  Within the next three or four years, Pacific Rim companies will be able to mine and ship the same minerals to the United States for less than Ajax can get them out of the ground.  The leadership team saw this challenge and wanted to do something immediately.  However, no one else in the company saw the threat.  Supervisors and hourly workers could only see that work was going on around the clock and that they were earning a lot of overtime pay. 

Although the current group of senior managers was fairly well respected, there was a history within Ajax of poorly run changes and even poorer management-labor relations.  The latter had got so bad that if management asked for something, workers were immediately suspicious that management was up to something that would have unpleasant outcomes for the workers (e.g., layoffs, pay cuts).  In light of this, the leadership team was aware that, at the very least, the workers’ reaction to any current initiative was likely to be a resigned “here we go again.”  Similarly, they were concerned that the union was likely to view any reference by management to “problems on the horizon” as a ploy to gain concessions during the next contract talks.

Given the history of their relationship, the leadership team expected workers to drag their feet on implementing any new approaches and by so doing undermine the prospects of success.  History suggested that both supervisors and workers would do just enough to “get by”, that is, they would provide minimum compliance.

Ajax management responded to the situation by establishing interactive sessions involving managers and supervisors.  They decided that they needed to make a compelling case for change before they began thinking about specific strategies.   In the past, they had done the planning before ever getting others involved in any way and suspected that that had contributed to the subsequent resistance.  During the interactive sessions, the general manager and the managers made the case for change.  As part of this process, they used stories about various companies that had faced similar situations and had suffered badly as a result of their inability to respond to competitive forces.  They also, for the first time, adopted an “open-book” approach in which employees were given unprecedented access to data on Ajax’s financial performance, particularly “the numbers that drive the business.”  Following on from this, a practice was established whereby workers, supervisors, and managers met weekly to share key performance numbers.

In view of all the Ajax management, they are already seeing a new level of cooperation between management and labor and are hopeful that it will help turn around the situation that has applied in the past in terms of management labor relations.

Problems at Perrier

Perrier may well be the iconic brand in the world of mineral waters.   However, regardless of the profile of the brand, the company that produces the bottled sparkling mineral water is having a tough time.  It is the focus of what one commentator describes as “a vicious struggle underway for the soul of the business”.

The origins of the Perrier company can be traced to 1898 when a local doctor, Louis Eugene Perrier, bought the mineral water source near Vergeze, France.  The company grew steadily, but demand really escalated in the late 1980’s when it became highly fashionable and championed by a range of admirers including Wall Street yuppies.  At its peak (1989), Perrier sold 1.2 billion bottles (830 million in 2003,) almost half to consumers in the United States.

The boom years were good for the Perrier workers.  Bouyant profits were associated with regular pay raises, social benefits, and extra holidays.  However, in 1990 the finding of a minute trace of benzene in a bottle led to the collapse of U.S. sales.  By 1992, annual output had halved and the company was close to bankruptcy.  At this point, it was bought for $2.7 billion by Nestle, the world’s largest food company.  Attracted by the combination of bottled water as a fast growing business and the world’s best known mineral water brand, Nestle identified Perrier as an attractive takeover target.

However, Perrier struggles to turn a profit.  In 2003 its pretax profit margin on $300 million of sales was only 0.6 percent, compared with 10.4 percent for the Nestle Waters division overall.   In 2004, it again recorded a loss.

The Perrier factory is on a 234 acre site on the Mediterranean coastal plain near Nimes.   The factory itself is rather nondescript, so much so that “from a distance it could be mistaken for a power station or auto plant.  Perrier employees work a 35-hour week and earn an average annual salary of $32,000, which is good for this part of France and relatively high for this industry.  However, the average Perrier worker produces only 600,000 bottles a year, compared with 1.1 million bottles at Nestle’s two other international French mineral water brands (Vittel and Contrex).

Relations between management and workers are not good.  Almost all (93 percent) of Perrier’s 1,650 workers belong to the CGT, a union that is viewed by the management as consistently resisting Nestle’s attempts to improve Perrier’s financial performance.   According to Nestle CEO Peter Brabeck-Letmathe, “We have come to the point where the development of the Perrier brand is endangered by the stubbornness of the CGT. “

Jean-Paul Franc, head of the CGT at Perrier, sees the situation differently.  In regard to the company’s plan to cut 15 percent of its workforce, her protests, “Nestle can’t do whatever it likes.”  He says, “There are men and women who work here…Morally speaking the water and the gas stored below this ground belong to the whole region.”

When in 2004, Danone launched a new product (Badoit Rouge) that was designed to directly compete with Perrier’s new super bubbly brand.  Eau de Perrier, Perrier’s management put bottles of BadoitRouge in the factory cafeteria.  This had been done to emphasize the point to Perrier employees that they were involved in a head to head battle for that niche in the market.  However, this act was not well received. 

“It was a provocation,” recalls one Perrier truck driver.  “We took the bottles and dumped them in front of the factory directors’s door, so he couldn’t get into his office.”