Argamassa Construction Materials Case Study

Course: Managing Employee – 78-613-02

Argamassa and Leandro Giuntini:

Argamassa was founded in 2003 by Giuntini and his brother Flavio with the financial help from

their father. Therefore, Argamassa owned three manufacturing plants and employed over 90

people. Most companies treated their work force disrespectfully, but Giuntini was the opposite.

He helped his employees financially and that lead to Argamassa’s phenomenal growth with

increasing sales by 86% in 2005 and 48% in 2008.

Eduardo Santiago and Leandro Giuntini:

When Santiago joined Argamassa, his mission was to solve the rampant disorganization and

inefficiency. Argamassa’s profit faced a huge loss, but Santiago took his step and by the end of

2008 there was no overtime pay and Argamassa profits were healthy. Thus, Leandro stopped

Santiago’s success by deciding to increase the prices and that lead to a drop in sales and stopping

all employees additional benefits.

Identifying the problems:

The increase in cost and drop in sales:

Argamassa’s variable cost has increased by 15% and fixed cost by 10%. This resulted in an 81%

drop in profits. Though the production was using 55% of its capacity the employees were

consistently working overtime. Also, Leandro Giuntini increased the price when two new

competitors entered the market with low prices, and that lead to dropping in sales by 10%.

Management and employees issues:

After cost reduction, the profitability started to recover. Therefore, instead of reinstating the

firm's previous benefits, money was invested on new trucks, and that disgruntled the employees.
Thereby leading to a rift in the relationship between the management and the employees.

Cutting down employee benefits:

The employee benefits were reduced to just above the minimum required by law. Leandro

Giuntini stopped paying for luncheons or groceries. He also ended a policy of salary advances

and reduced Christmas bonuses and gifts. The snack budget was also reduced for the

transportation team.

Sales reps and employees dissatisfaction:

The sales reps that normally pushed Argamassa products started marketing other company’s

products. Also, employees took a longer time to do their jobs and were less productive. Many of

them started quitting. Though replaced by new hires, they soon got adopted to the prevailing bad

habits.

Possible alternatives:

1- Overtime hours’ reduction scheme.

The employees continued working overtime, even though the factories were running on

half of their capacity. This contributed to weighting the burden on the company by incurring

more loss. Therefore, it was incumbent upon the administration to reduce the expenditure. For

example, the company can announce the situation to its employees without creating any concerns

about the future of the business, or to divide the overtime on groups which will lead to more

expenditure control, without affecting the productivity.

· The result:

Reducing the expenditure with consequently bring the situation into balance. Since there is a
crucial financial principle requires the revenues to match the expenses, the company should have

applied the rule to avoid such an issue.

2- Finding more sources of revenue:

The company had the option of devoting some of its resources to start new ideas of production.

For example, using the available resources for production, offer more services to the customers,

or to find a new sources of financing for a brand-new investment.

· The result:

when the company has a variety of resources and increase in assets, it will have the potential to

generate more profit.

3- Competitive product pricing:

“Even peace may be purchased at too high a price.” Benjamin Franklin.

The management of any company must consider doing a research on the market. A lower price

does not always mean that the product quality is inferior. In addition, for some customers the

higher price refers to the higher quality. Therefore, the price is a key element to increase sales.

· The result:

By studying the market and the pricing strategy, the company will be able to make the best of its

sales and keep the profitability as high as possible.

Resolving the issues using concepts learned in this course

First of all, we addressed that Giuntini's decision that invest to trucks and production instead of

restoring the previous benefits to the employees when turned to be profitable. This promise
breach damaged the relationship between labor and management. This point brought us the

attention to the importance of employees trust towards management. "Trust perceptions

influence organizational process and outcomes, such as sales levels, net profits, and employee

turnover". As we learnt, trust perceptions toward management based on 3 categories: ability,

benevolence, and integrity. Obviously, Giuntini did well on first 2 factors. His dogged

determination and capacity to handle multi-task at the same proved the employees trust on his

managerial competence and skill. Also, the generous benefits at the beginning and respectful

treatment to the workers represented his caring, concern of their interests, and made them believe

the management willing to do good for them. The breach of promise seriously influenced the

perceptions to the management and workplace. Current workers became less productive and new

recruits adopted the bad habits. Giuntini should implement the benefits restore procedures

immediately to reinstate the trust of employees on the organization.

Argamassa's current situation also brought us the concerns on organizational communication and

leadership. Since Giuntini focus on manufacturing operations and productions, he dedicated

more time to deal the relationship with workers, the front line employees. Contributed by his

demanding managerial style and generous benefits, the workers were holding strong commitment

to the company. They were willing to accept the cuts and get through the difficulties along with

the him. This built an undoubted leadership among the workers. Eduardo Santiago then realized

two potential problems from Giuntini's cutbacks decision and part of employees' responses such

as Fonseca. From the first place, when Giuntini decide to reduce the cost by abandoning the

various benefits to workers, he ceased to consult to Eduardo Santiago, who played a major role

on solving problems in 2007. This action caused the discontinued function of Santiago's role.

Moreover, it confused the leadership recognition towards employees which passively affect the
morale of workers and management level. Apparently, Giuntini's cost-cutting decision didn't

come up with proper preparation. Communication and clear leadership are strongly related to

effective decision making. As we studied further in this course, we would learn and apply "the

rational decision making process"(Pg. 402. Exhibit 11.1) to Argamassa's case. When the problem

has been identified, we should start to gather relevant information. Meanwhile, this information

collection procedure requires an open communication channel. The decision maker should

consider a variety of parties that hold the interest to the organization. In this case, Giuntini

should communicate with the customers, estimate the potential competitors, and evaluate the

consequences before deciding to raise the prices. On the other hand, before deciding to cut off

employees' benefits, he should spend more time to get feedbacks from workers at front line,

consult the management peers and empower the subordinates to prepare consequential impacts.

Present the recommendations and how it will be executed:

Firstly, Giuntini should restrict himself from intervening his Santiago’s role and stop his

micromanaging obsession. This will give Santiago and other managers the freedom in

implementing new ideas, and will give the employees a clear vision of whom they should listen

to and follow. Secondly, retrieve the company’s sale growth by increasing the marketing budget.

This will attract new customers to make business with Argamassa. Thirdly, gain employees’ trust

back and build a new benefits structure. This will reduce the toxic relationship between labour

and management, increase the output efficiency. and reduce overtime cost.