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RO BERT SI MON S
ANT O NI O D Á V I LA
Compagnie du Froid, S.A.
Jacques Trumen, CEO and major shareholder of Compagnie du Froid, S.A., was reviewing the performance
of the three regions of the business: France, Italy, and Spain. Evaluating the performance of the regional vice-
presidents was not a task that he enjoyed. Jacques had traditionally given each regional manager the same bonus:
2% of corporate profits. Jacques believed that this system avoided a
itrary evaluation criteria and encouraged
open and fruitful communication among the regions about new ways of doing business.
The results in 2009 challenged the fairness of this evaluation system. The performance of the Spanish region had
een extremely poor and had driven the company’s overall profits to their lowest level in 10 years. Jacques thought
that it was unfair to have the French and Italian managers pay for the problems of somebody else. But he was not
sure how much Andres Molas, the manager of the Spanish division, was to blame for Spain’s poor results.
Compagnie du Froid, S.A.
Founded in 1985 by Jacques Trumen’s father, Compagnie du Froid, S.A. had grown steadily over the years to
e a major competitor in the summer ice cream business. It had a dominant position in the coastal tourist areas
from Perpignan to Nice and Monaco, the region where it was founded. In 2007, Jacques took over the business
and re-directed the company into an aggressive growth strategy. By 2009, the company was a market leader in
the eastern part of France, the northeastern coast of Spain, and northern Italy. Jacques kept a watchful eye on the
efforts of the three regional managers to expand the operations to other key tourist areas in their regions, but his
attention was mainly devoted to the creation of a new business: a year-round ice cream operation based in Paris.
Jacques believed very much in decentralizing decision making as much as possible. Each region had its own
manufacturing, marketing, distribution, and sales organization. Regional managers chose distinctive names for
new products, the level and mix of advertising, and local suppliers. The central office maintained responsibility
for the accounting and financial aspects of the business, development of new products in ice creams and
“specialties” categories, and the sharing of experiences and learning across the regions.
Professor Robert Simons and Doctoral Student Antonio Dávila prepared this case with the assistance of Research Associate Kathryn Rosenberg. HBS cases are
developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or
ineffective management.
Copyright © 1997, 1999, 2000, 2010, 2017 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-
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XXXXXXXXXXCompagnie du Froid, S.A.
Jacques exercised control of the regions through a profit planning system. The profit plan covered the
upcoming fiscal year which began on January 1. In November and December, each region prepared and submitted
their initial profit plan to the central office. Jacques used the profit plan to discuss and supervise the expansion
strategy of each region and to make sure that enough cash would be generated to support the company’s new
corporate ventures. The final phase of the profit planning process was a top management meeting which
ought
together Jacques, the three regional vice-presidents, and the finance and technical officers to discuss new growth
opportunities. A lot of time and face-to-face contact was devoted to the profit plan and, once approved, it was the
guiding tool to monitor and evaluate performance.
During the summer months, each region generated a profit statement every two weeks that Jacques reviewed to
detect major problems. In addition, Jacques spent a week in each region to “get a feel for the market.” At the end
of October, another top management meeting occu
ed to learn from the experiences over the past year and to
schedule winter activities to prepare for the next season. In early December, Jacques handed bonus checks to the
three regional managers.
Top line revenue goals for the upcoming year were established using past growth rates and the market
expectations of Jacques and the regional managers. Exchanging knowledge and experiences was a key element in
shaping the growth assumptions of the profit plan. For 2009, the expected volume growth was 9% for the French
egion, 10% for the Spanish region, and 12% for the Italian region.
Since 2005, when Compagnie du Froid introduced its first specialty product—sophisticated ice cream flavors
made with prime quality ingredients, the strategy had been to emphasize these specialties that enjoyed higher
margins and less intense competition. This strategy became operational through the profit plan: Jacques set
ambitious goals for the percentage of sales volume coming from specialties for each of the regions.
Standard selling prices and manufacturing costs were based on last year's actuals adjusted for any expected
contingencies. Efficiency standards assumed that manufacturing would improve its year-to- year performance
ased on learning and better equipment.
Finally, Jacques believed that the business should compensate shareholders—himself, his
others and sisters,
and top managers in the company—for the risk of tying up their capital in the business. Thus, he expected a
easonable return on shareholders' investment. His reference point was 18% return-on-investment before taxes.
Exhibit 1 illustrates the standards used to design the profit plan for one of the three regions.
France
Jean Pinoux was the manager of the French region. He was promoted to this position in 2007 when Pie
e
Giraux, the previous manager, took over the lagging Italian operation. Jean had started as a sales representative,
then advanced to be responsible for production, and finally became division manager.
Jacques was pleased with Jean’s performance (see Exhibit 2). His profits were above budget, and sales had
increased almost 20% over the previous year. Jean had invested a lot of his time in managing the expansion into
the west coast of France, negotiating with new vendors and suppliers, and a
anging distribution of the product. If
all this effort had paid off in 2009, the profits would have been even higher, but Jacques knew that they would
have to wait several years to get the full benefits from this investment.
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Compagnie du Froid, S.A XXXXXXXXXX
The performance in the traditional regions of the French market had been a bit disappointing. Market share
had slipped from 20% in 2007 to 18% in 2009. Jean Pinoux argued that his frequent trips to the west coast had
negatively affected his relationships with distributors in the east coast.
The French region had bought new machines two years ago. While there had been some start-up problems,
the machines ran smoothly during 2009 thanks to Jean’s manufacturing expertise. The manufacturing operation
was staffed with a core group of employees which supervised production and maintained the machines. Most of
the workforce was people hired on an hourly basis.
Jean had found a new source of revenue from a personal friend who operated a well-known restaurant in
Camargue. Over the summer of 2009, Jean’s friend had decided to package his meals and distribute them through
supermarkets and food stores in the region. He needed refrigerated trucks to deliver his products and Jean agreed
to distribute them for a fee. Most of the retail outlets were already visited by Compagnie du Froid’s delivery trucks
and the incremental cost to the company to provide this service was very low. Jean saw this business opportunity
as a simple way to increase revenue. By the end of the summer, he had agreements with two other regional food
producers to deliver their products beginning in summer 2010. He planned to work over the winter season on
getting more of these deals that were easy and very profitable.
Jacques was surprised by Jean's initiative, but acknowledged that there was a profit potential in the distribution
usiness. He was concerned, however, that distribution was outside Compagnie du Froid’s core business, and he
felt unsure whether to follow this new opportunity (Compagnie du Froid's mission is reproduced in Exhibit 7).
Italy
Pie
e Giraux was the manager for the Italian region. He had been in top management positions with
Compagnie du Froid for the last 10 years. Previously he had run the French region, but Jacques asked him to take
care of the Italian operation because it was not performing adequately. Jacques knew Pie
e very well. He was an
excellent manager with a very clear sense of the market. Although running the smallest region in the company,
Pie
e had been the main force in attaining a leadership position in the French market and was a close partner in
Jacques’ new ventures.
Pie
e’s performance as manager of the Italian operation had been excellent. He had attained his sales goals
and expanded the distribution of the company’s products into most of the western Italian coast.
In the manufacturing side, he had suffered from higher wages and lower efficiency than expected. The
machines used in Italy had been moved from France when the new equipment was installed in France. The old
machines were partly the reason for the lower efficiency, but this expectation had already been incorporated into
the profit plan.
Exhibit 3 shows the performance of the Italian division in 2009.
Spain
Andres Molas was the manager for the Spanish region. He had been in charge of the Spanish operation since
it started in 1995. Andres was the only non-French top manager. His performance had been outstanding until
2009. He had grown the division from scratch and he was well-respected for his innovative ideas. For example,
last year he had developed a vending machine to sell specialties. The
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