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CMR EnterprisesGroup 2

Mike’s Cabinet should stick with Blackstone Homes as it is their largest account and 25% in their residential business

External

• They should interact with Blackstone highlighting the importance of operational efficiency and ensure that Blackstone is taking the required steps to fulfill all the requirements of customers

• The new pricing model should be thoroughly discussed with Blackstone as changing the price without informing the main account was a wrong step

• Discuss with Blackstone the importance of coordinating the work of all subcontractors to avoid last minute changes, which would be mutually beneficial• Beneficial for Blackstone: No delay from subcontractors• Beneficial for subcontractors: No extra cost

Internal

• Train and mentor the project manager to update the Infocentral • Hire a Project Manager from the Industry who has experience in handling big accounts such as Blackstone• Focus on residential business as much as on commercial business• Align the business processes and tools of Infocentral to suit the residential business

(Q1) What should CMR do about the Blackstone account?

(Q2) How much profit is being generated by CMR’s commercial relative to its residential business? By the Blackstone account?

Microsoft Excel Worksheet

Initially

• The Blackstone proposal looked good and it was a huge opportunity for CMS to expand into the residential space

• The initial concerns about the contribution margins of 38% as compared to 48% in commercial spaces were brushed away

• Since Blackstone was on a growth spree, this meant growth for CMR as well• They would provide with huge volumes of work

But later

• Blackstone's reputation of being hard on their subcontractors was not taken into account• CMR should have hold onto its policies rather than just giving in to Blackstone. They shouldve spoken about

competition in the cabinet industry beforehand• The two companies were not a fit for each other• The industry was price sensitive especially for the residential work

(Q3) Was CMR’s decision to initiate a relationship with Blackstone a good one?

• Custom architectural millwork industry• Low capital investment• Proprietary companies operating the business

Commercial

• By the name of CMR Business• Very structured process• Involves bidding and contractorship• Due to low price negotiations, conversion ratio was just 20%• Deal with owner, architect and general contractor

Residential

• By the name of Mike’s cabinets• Residential carpentry: mainly cupboards cabinetry• Very less push strategy• Homeowners primary target• Operated on referrals and word of mouth

(Q4) What is the nature of CMR’s business? How does it differ across the two market segments?

• Long business cycles, with payment in the end• Commercial and residential space

(Q5) How did the CMR-Blackstone relationship evolve over time? Highlight important events and actions that influenced this evolution

Who

• Blackstone Homes - Residential Customer – One of the largest homebuilders in the area – market positioning as best quality for lowest pricing

• 3 subdivisions – starter homes ( $120,000) , family homes ( $120,000- $150,000) , luxury homes ( $150,000- $200,000)

• Unique Strategy : Partner closely with subcontractors and permit homeowners to make selections only from its partner subcontractors

Why

• Strategically aligned and great fit

• Residential market seemed great opportunity for a scalable , replicable business model

• Aligning with one of the biggest customers of the area resulting in direct increase in market share

• Standardize processes into flexible cells

• Blackstone ready to pay full price

What

• Blackstone agreed to specify only CMR’s cabinets in its homes and CMR to assign the project manager who had worked on previous projects to work exclusively with Blackstone


• Blackstone directed all its customers to CMR and contributed to 25% of the residential business

• At times changes were made by Blackstone and homeowners last moments but no information was updated in the project management system

YEAR 1

• Two parties sat for discussion on pricing as Blackstone President asked Marcus to reduce prices on account of increased operational efficiency which Marcus felt they hadn’t achieved

• Companies agreed on cost reduction by limiting CMR’s interaction with the homeowners

• However their attempt towards cost reduction did not work• Coordination problems were cropping up and often there were conflicts

regarding who pays for the mistakes• Other contactors started calling CMR instead of Blackstone to get drawings

YEAR 2

Problems• Blackstone homeowners were directly working with other subcontractors• Project co-ordination problems• Marcus was concerned about asymmetry of information and recommended Info

Central for all future orders which was not taken well due to standardization issues• Differences between estimated and actual cost of each project for CMR• Contribution margins were 38% of sales in residential as opposed to 48% for

commercial• CMR raised prices by 7% and corrected prices for some individual items that were

mispriced that made Blackstone feel betrayed• Change in orders were last moment and not updated in the system causing a lot of

unpaid orders for CMR


Reasons for persisting in the relationship:

• Blackstone had approached CMR due to its reputation in the community and good experiences• Volume was compelling, seemed like a strategic fit• Biggest customer in the area – huge opportunity for immediate market share • High growth plan• Steady revenues – 25% of their business comes from Blackstone• Biggest account so far• Can play a major role in reaching the target sale of $70 million by 2007

Remedies for such a situation:

• Greater involvement with Blackstone in terms of issues faced by them from the customers • Flow of information between CMR & Blackstone to be reworked

• Updating the Info Central for all internal communications by the residential team• For easy analysis of customers and funds coming from customers

• Explain the reasons & need for an increase in price by CMR

(Q6) Why did CMR persist in the Blackstone relationship? How would you remedy such a situation

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