Crisis at Wrentham Corporation A Case of Executive Selection after Merger On the
ID: 443238 • Letter: C
Question
Crisis at Wrentham Corporation
A Case of Executive Selection after Merger
On the morning of August 1, 2001, Hal Benning, chief executive officer of Wrentham Corporation, a large diversified manufacturing company located in Houston, Texas, picked up the phone and punched in the number of Frank Powell, chairman of the board and longtime friend and associate. The news would not be good.
“What’s up, Hal?” Frank asked. “You sound troubled.”
“The quarterly numbers are in and Computerstat is going to show another net loss, about $2.5 million. What’s more, I’ve just learned that George Steele will be stepping down as division head at the end of the month to take a position with one of our competitors. He wants to move on while he is still marketable. George feels that if he stays and the division’s merger with Microstat fails, his career will be damaged”.
“I’m sorry to hear that, but I can’t say I altogether blame him,” said Frank. “This merger has been an awfully messy business.”
“It’s been rough for all of us,” interjected Hal, “but we told the stockholders when we decided on the acquisition that we could make the new combined division profitable.”
“That we did, Hal,” agreed Frank. “Obviously, we have quite a task in front of us. Where do we stand today?”
“We are still well behind the planned integration schedule and our costs are way over budget. I know both the Microstat people and our folks from Home Computer are trying to work together, but they just don’t share a common vision for the business.” Hal continued, “For example, no one seems to agree about our international strategy. The Home Computer managers view the domestic market as our bread and butter and see foreign markets as only an incremental opportunity. On the other hand, Microstat’s position is that penetrating foreign markets is the key to our future growth, profitability, and even survival. Operationally, we have the same sorts of problems. R&D has not made significant headway on any project requiring cooperation between Wrentham and Microstat people. My feeling is that we are to a large extent still managing two separate organizations.”
“I noticed that many of the manufacturing and financial reports are still segregated,” stated Frank.
“Integrating MIS remains a problem,” acknowledged Hal, “but what concerns me most is a lack of unity and trust that extends all the way down to the factory floor. Out at the Santa Clara plant, Microstat people won’t follow the advice of our process engineers because they don’t trust our knowledge of their products and markets, and some of the Home Computer managers are blaming Microstat for our performance problems. This type of divisiveness has to go. If it continues, we’ll never achieve greater economies of scale or improve our product line.”
“The competition is getting ferocious,” observed Frank. “The low-end marketers are beating us on price and the market leaders have superior products. If that isn’t bad enough, getting access to distribution channels has never been tougher and some of our costumers believe we may not be around much longer. Our dealers are getting nervous. If we don’t take some action soon we’ll be in trouble.”
“True enough, but the real problem is here at home, Frank. People are getting burnt out on the integration program; all those task forces and meetings divert their attention from the problems facing the business in the marketplace. We have to find someone who is strong enough to turn this division around.”
“You’re quite right, Hal. I think we need to bring in someone to help us with this one. Why don’t you see if Bill is available?”
“Agreed. I’ll take care of it right away.”
BACKGROUND
Wrentham Corporation was founded in 1936 by William Wrentham as an office equipment firm. In 1978, it entered the microcomputer industry and two years later was restructured into three autonomous divisions: Wrentham Office Supply, Wrentham Communications, and Home Computer, now called Computerstat. Before the merger, Home Computer, with its headquarters and manufacturing facilities located in Houston, Texas, designed and produced relatively unsophisticated, low-priced microcomputers for both the home user and business market segments. Its key strength was in the home user market, a segment that represented nearly 80 percent of Computerstat’s total sales. It also sold machines to small and medium-sized businesses. With annual sales of $214 million per year, Home Computer was one of the larger microcomputer manufacturers in the United States. The division survived an industry shakeout in the mid ‘90s but had been unable to establish a leadership position in the PC industry.
Starting in 1998, Home Computer made some tentative attempts to sell PCs in Europe, particularly in France, Italy, and the United Kingdom, but had not been particularly successful. The great majority of its sales were still concentrated in the continental United States and distributed through mass market channels.
Although Home Computer was marginally profitable in 1999, management began to realize that its future hinged largely on its ability to adapt to a new set of opportunities and threats emerging in the industry. Demand in the home user market segment had begun to level off while the business market was showing higher growth. Furthermore, the domestic market was beginning to show signs of maturation while international demand for microcomputers still offered significant opportunities for expansion. Price competition was also intensifying, requiring greater economies of scale and cost reductions to remain competitive in all but the most specialized market segments. Finally, both home and business users were demanding microcomputers with greater storage capacity, processing speed, and software and systems capability, making effective R&D and marketing even more crucial to keep pace with technological change, shifting customer preferences, and increasing competition.
In response to these opportunities and threats, the president of Home Computer and his staff mapped out specific strategic objectives: (1) decrease dependence on the home computer market, (2) significantly increase sales to the business sector, (3) penetrate selected foreign markets such as Canada, Western Europe, Australia, and New Zealand as the first step toward securing a strong international presence, and (4) improve both product and process R&D. Management concluded, however, that it was not possible to implement the required changes rapidly enough from within the division to keep pace. Therefore, it was decided to seek an acquisition in order to achieve its objectives.
About that time, Microstat, a comparably sized firm located in Santa Clara, California, announced that it was looking for a buyer. It had experienced declining sales, and profit margins had been driven down by price-slashing competitors. Microstat was strapped with far too much inventory and its cash position was weak. Faced with an approaching decline to repay a $24 million long-term loan, it had looked without success for another lender and a buyer for its unsold inventory. To make matters worse, the company was betting its future on a new product that had yet to make it out of the design phase. Although Microstat was in trouble, Home Computer’s management believed its strengths were consistent with the needs of the division.
Microstat focused on the small to medium-sized business market segment. Sales to home users accounted for only 16 percent of total sales. Moreover, Microstat had established strong distribution channels in Europe; international sales accounted for over a third of its total sales. The company was particularly strong in Germany, France, and the Benelux countries (Belgium, The Netherlands, and Luxemburg). It was also in the process of negotiating an agreement with a large Japanese electronics firm to produce computers under that company’s label. Wrentham’s corporate and divisional management agreed that with more emphasis on process engineering to reduce costs, and its strengths in products R&D and international marketing, Microstat would make an ideal acquisition for Home Computer.
When the acquisition was announced in January 2001, a number of teams made up of both Home Computer and Microstat managers were put together to work out the many aspects of the merger. A top management team was tasked to oversee a comprehensive integration program and to build a cohesive, unified division. Functional teams worked on the specifics of melding various operations and systems, such as R&D, sales, manufacturing, and human resources and information systems.
Six months later, it was apparent to management that the integration program had not progressed as far as it had hoped. A number of critical, technical problems remained unresolved. The human resources team was finding it difficult to develop a system to determine positions, compensation, and seniority that would be perceived as fair by all employees. Management had yet to develop a usable information system, making it nearly impossible to access usable financial data in a timely fashion. Efforts to reorganize the R&D function were meeting stiff resistance; the department remained polarized along old company lines with Home Computer engineers arguing for cost control and Microstat people unwilling to budge on product design features. In addition, R&D suffered from a lack of leadership and direction as the vice presidents of R&D from both the merged businesses left after the merger. Manufacturing had experienced a similar ongoing debate over quality assurance and on-time delivery standards.
THE CANDIDATES
Two weeks later, Bill Brandt reported the results of his search for a new president for Computerstat to Hal Benning and Frank Powell. He had been instructed to conduct his search without soliciting input of George Steele, the departing president of the Computerstat division. Brandt had retired from his position as Wrentham’s director of human resources the previous year but was kept on retainer as a part-time management consultant due to his experience and perspective accumulated over a career of 43 years with the corporation. Bill began:
I’ve narrowed the list down to three candidates, the first of whom I’m sure you are both familiar with – Tom Banks. As you know, Tom worked for one of the largest firms in the computer industry for 17 years before coming to work at Wrentham 10 years ago. For the last eight years, he has been Home Computer’s vice president of manufacturing, a position he holds today in the combined operation. He has a bachelor’s degree in Electrical Engineering from Texas Tech and MBA from Texas A&M. He’s 54 years old, and is married with three children. What makes Tom an attractive candidate is his years if experience in the computer industry and his ability to manage operations efficiently. Although Home Computer’s products have not fared as well in the market the past few years, Tom has helped keep the division afloat by squeezing costs so that it could remain competitive with the larger companies.
Tom is known for his passionate involvement on the factory floor. It’s not unusual to see Tom, sleeves rolled up, walking the manufacturing line, or talking with line supervisors about part specifications or equipment maintenance. But behind the façade of a spirited, blue-collar team player is a technical genius. Tom’s intellectual grasp of the intricacies of each step in the production process is without equal. What’s more, he has an intuitive ability to recognize how any change will affect the entire process, and his overriding bottom line, cost.
Tom is known as upbeat, energetic, and good-natured; however, when he feels his goals are being compromised, he has been known to be very aggressive in defending his views. Some may even say that he is dogmatic and inflexible when challenged. I consider him to be a forceful advocate for quality and efficiency. In fact, many of the standards and procedures in force at the plants today were developed and implemented by Tom. He simply loves to make computers.
The second candidate is Sheila Covington. Sheila was with Microstat when it started up in 1981. Before the acquisition, she had been its vice president of marketing for three years, a position she now holds with Computerstat. She received both her bachelor’s degree in Marketing and MBA from the University of California. Sheila is only 39 years old and still single, but she has a fiancé who is a partner in a high-powered San Francisco law firm.
Sheila is known as a risk taker and an internationalist. While at Microstat before the acquisition, she was able to push through her program for headlong international expansion at a time when other smaller companies were hesitant to commit quickly and heavily to overseas markets. Her success in winning solid distribution agreements in Europe accounted for much of Microstat’s success. She speaks fluent German and can hold her own in French. In fact, she was an exchange student in Frankfurt during one of her undergraduate years. She enjoys traveling and likes to mix business with pleasure during her many trips. For instance, during her 2000 vacation in Switzerland, Sheila was introduced to an executive of the Yokohama Company which led to Microstat’s negotiations to sell private label computers in Japan. Although talks have stalled since merger, whatever hope we have of building a presence there in the next several years rests on her shoulders.
During my two weeks talking to people in the company, it became apparent that she retains quite a following from the Microstat’s crowd, not only in sales, but also in R&D and manufacturing. While at Microstat, Sheila worked very closely with both of these functions to facilitate the production of a greater mix of products.
Sheila is a zealot for customer satisfaction and it is this orientation that probably accounts for much of her success in opening up and expanding markets. She has not been without her detractors though. Some would say that she is either ignorant of or unconcerned with cost control. I believe this view is a gross simplification. Sheila understands the need to control costs as well as anyone, but she’s always been more of a revenue-oriented manager. She has always tried to attack new market segments, both foreign and domestic, and has advocated increasing market share through greater product differentiation and value-added features. To Sheila, short-term inefficiencies are a necessary evil when you are creating a larger revenue base in a growth industry.
The final candidate is Carl Ferris, who I am sure you are aware is credited with much of the success of the Dynasis-Culver merger in Wrentham’s communications division. He is 57 years old and although best known for his five years at Dynasis, his real background is in network communications. Before jumping to Dynasis, he had worked for Electron Equipment Company for 25 years where he attained the status of vice president of R&D.
Carl was known as somewhat of a rogue at Electron. He spent as much time dabbling in other functions as he did in his own. Surprisingly, for someone with such a technical background, including a Master’s degree in Computer Information Systems from MIT, he has always been a seller of ideas, a charismatic sort. I’ve heard comments that Carl could sell you the sole of your own shoe and you’d thank him for it. The truth is that Carl is a leader. He has a knack for galvanizing people and gathering support.
I was able to talk to a number of my contacts at the Dynasis division over the past week, and I think I’ve been able to put together a pretty good picture of what has happened there. It seems that at the outset, Carl pulled together many of the best managers from both companies and formed a tightly knit team. They say that Carl presented his idea powerfully and enthusiastically, yet listened to his people with equal intensity. He cajoled top managers to advocate views different of his own. He was open and willing to compromise, and absolutely demanded the same from his staff. His one firm rule was that once the team had hammered out a decision, every member was to support it 100 percent. Carl does not tolerate excessive individualism, divisiveness, or half-hearted loyalty. You’re either with the team or you’re not. It’s been rumored that he heard one senior vice president complaining about a policy one too many times to a staff member and Carl sent him packing on the spot.
But I don’t regard Carl as a hard man. He treats people with the highest dignity and respect. His praise is quick and sincere, and he abhors finger pointing. Sure, some hard decisions had to be made at Dynasis, and Carl shouldered the responsibility. One plant in South Korea was closed, other operations consolidated, and countless jobs redefined. He publicly told employees up front exactly what was going to happen and why. It was a painful transition, but Carl’s reputation for integrity and his keen leadership enabled Dynasis to redirect its efforts quickly and effectively. The only problem I see is that taking over Computerstat would represent a lateral move for Carl. He has been training several men as possible successors and appears to believe he is in line to replace Jim Hamilton as COO of the corporation in a year or two. Carl is not a young man so if you want him to take on this challenge it will be necessary to be up front with him regarding his future here, and perhaps offer him a position on the board, as well as a substantial increase in salary.
There was a pause as each reflected on what has been said. Hal spoke up first. “I think that each of these individuals is highly capable. However, the success of the new president will be largely determined by how his or her skills and vision serve to meet Computerstat’s particular strategic and operational needs.”
“Whoever is chosen is going to have to get a quick handle on the situation,” chimed frank. “There are a number of issues that must be dealt with immediately. Market demand has been lagging. The economy is in a recession, and this recent string of unprofitable quarters must be arrested and turned around in short order. This company is depending on Computerstat to generate some cash flow. Our stance has been in the past, and I believe should continue to be, that Computerstat must be able to operate successfully on its own without looking to the corporation to bail it out. The plan was that Computerstat would be in the black by the end of the year. That was the commitment George made to us and that we made to our stockholders. I am not amenable to changing these expectations at this juncture.”
“I understand your position, Frank,” Hal responded, “but much of Computerstat’s poor performance can be explained by Microstat’s initial overestimation of sales and profit projections. The company was not in the shape that we were led to believe. That said, I agree with you in substance. The turnout must be quick. Yet the pressing short-term demands must somehow be reconciled with the implementation of a new strategic direction. I question whether either home Computer or Microstat could have gained and held onto a competitive edge on their own. George Steele had his ideas on where this division was headed, but they haven’t panned out. The new president of Computerstat will want to implement his or her own plan, regardless of what has been done in the past. I see that as a good thing.”
“Well, time is short,” lamented Frank,”and we are not going to get any closer to a decision by drinking coffee and speculating. We have a pool of three outstanding candidates here and we must make a decision quickly. I suggest we notify the candidates today, and ask each of them to submit a memorandum within three days outlining what actions they would take to turn Computerstat around and how they see the division competing in the future.” (See Exhibits 1 through 3 for the memorandums submitted by each candidate.)
“Good idea,” nodded Hal, “By the way, Frank and I have reconsidered our decision to keep George out of this process. Although we still have our concerns, we now think that it’s best to get as much input as we can, including George’s. I know you would have preferred to talk to George at the outset. Nevertheless, your work here reflects your customary thoroughness. I’ve asked George to join us here for a meeting on Friday at eight.
“That’ll be fine.”
Exhibit 1__________________________________________________
From: Tom Banks
To: Hal Benning
It was with great satisfaction that I received your phone call telling me that I was to be considered for the position of president of Computerstat. I wholeheartedly appreciate your confidence and recognition of my past contributions to the company. Although I enjoy my present position immensely, I would be readily welcome the challenge and opportunity that the position of president would offer.
As you are well aware, Computerstat has suffered losses since our acquisition of Microstat six months ago. Before the acquisition, we were maintaining marginal profitability in a tight economy and weakening market conditions. Our losses over the past two quarters can be partly explained by the company’s hesitance to quickly consolidate a sufficient number of manufacturing operations to achieve the necessary lower unit costs. If such an action plan had been aggressively pursued, we could have enjoyed significant and immediate savings, and been able to position ourselves to realize an adequate per-unit profit margin by now. I would implement such a plan, and anticipate that Computerstat would return to profitability in two quarters, three at most.
A second and related factor is that we are still producing the same mix of Home Computer and Microstat machines that each made before the merger. If we plan to gain a competitive edge, we can no longer afford to fragment our efforts by making a wide range of machines aimed at every market segment in the industry. We simply cannot produce the same number of models as we do now and do it at a competitive cost. We also need to be patient. I would like to see Computerstat sell more products overseas someday. But we simply cannot afford to be expending our efforts on expansion in Europe or Japan, or any other foreign market for that matter, until we have put our U.S. operations in order. While those other markets are attractive, our success or failure today, and for the foreseeable future, depends on how well we do at home.
The keys to Computerstat’s success in the future are: (1) strictly defining what we do best and adhering to it, and (2) understanding where the industry is headed and how Computerstat fits into that picture. What Computerstat does best is make quality, low-cost microcomputers. Microstat should be assimilated into the division so as to enhance that capability. Furthermore, such a strategy positions the company to survive and grow with the industry. Our low-cost stance enabled us to ride out the earlier industry shake-out. Te industry is now approaching maturity. The days of double-digit sales growth are about over and probably will never return. The market is approaching saturation, and price competition is accelerating. A second shake-out in the near future is not unlikely. The survivors will be those companies that are structured and focused on efficiency. If I should be chosen as president of Computerstat, this is the precise direction I would take.
______________________________________________________________________________
Exhibit 2______________________________________________________________________
From: Sheila Covington
To: Hal Benning
I am very excited at the prospect of serving as president of Computerstat, and offer my sincere gratitude to you and to the board for selecting me for consideration.
As outlined in Home Computer’s original contacts with Microstat’s managers and supported to some extent by the ongoing work of the top management team, the primary aim of the Home Computer-Microstat merger was to bring Microstat’s marketing strength to bear on Home Computer’s line of low-end computers, and to continue to push forward with the enhancement of higher-end Microstat models.
The common element shared by the effective companies in the industry is that they aggressively pursue and capture market share wherever the opportunity presents itself. Concerning higher-end machines, market characteristics are changing as fast as technological advances both create and meet new needs. The range of uses for microcomputers is unlimited and expanding (e.g. multimedia, home banking, and communications). Running concurrent with this technological explosion is a greater demand for peripherals, specific capabilities, and various value-added items including service. In order to compete in this market, Computerstat must offer the customer a choice of models and assorted enhancements.
There is also considerable potential for Computerstat to sell products overseas. Our research department tells me that with our high end machines we could achieve substantially greater penetration in Western Europe and capture a significant market share in Japan if we put forth a concerted effort.
The market for simpler machines still offers relatively untapped opportunities in many foreign areas, particularly developing countries and the emergent Eastern European states. Quick entrance will enable Computerstat to establish a firm base from which we can grow with these advancing countries; the first to the market often prevails over late arrivals, even those with better or less expensive products.
In summary, Computerstat’s recent drift from profitability is due to its failure to attack new and emergent market segments. Consistent with this reasoning, I would pursue greater product differentiation of high-end models and penetration of high potential foreign markets with our low-end machines. Not only will strategy set Computerstat on a highly competitive course, but it will build a larger revenue base from which company can begin to shortly realize real and sustainable profits.
Exhibit 3______________________________________________________________________
From: Carl Ferris
To: Hal Benning
I must say I was quite surprised when you called the other day to ask me if I would be interested in taking over the helm of Computerstat. After much thought, I have decided that if you share my vision for the company, then I would welcome such an invitation. Let me tell you how I view this challenge, and precisely what I believe I can do for the firm.
My Dynasis experience has confirmed to me what I have suspected for some time. As general manager, I cannot direct the activities of an organization as a field marshal does his cavalry. I am neither that commanding nor that clever. Joining two organizations greatly disrupts conventional management process, making the role of general manager all the more difficult. Consequently, merger situations offer a hazardous and utterly frustrating road to anyone intent on unilaterally implementing even the most ingenious strategic plan.
The fundamental purpose of any merger is to create synergies which enable one large unified firm to perform certain activities cheaper and more effectively than the two firms did apart. The reason why most companies’ post-merger performance is poor is that they underestimate not only the technical difficulty associated with achieving certain synergies but also the substantial inertia demonstrated by employees of all echelons when confronted with change. The key then is to unfreeze people from the dictums and scripts of the past and to encourage and facilitate new modes of thinking and doing. This is not a matter of selling the Microstat people on the Home computer way of thinking or vice versa. What I want to do is create a new meaningful for all employees that they will feel is superior to either of the old ways; the effectiveness of any major strategic reorientation will be both dependent upon, and a consequence of this.
Because future performance will be determined by the relative success of integrating the two companies, the dominant and overriding standard which Computerstat must measure itself against must be a set of goals associated with the integration program rather than those related to short-term performance. The implication of this is that if Computerstat is going to emerge as a viable and profitable going concern, it can no longer afford to continue to emphasize short-term profits at the expense of efforts that will create a long-term enhancement in competitiveness. Given the current state of division, these objectives are not reconcilable.
As an outsider from another division, I offer the distinct advantage of not being constrained by any prior alliances or mind-set. Two polarized groups of employees are also more likely to follow my lead than that of an insider who will inevitably be associated with one of the two organizations. In sum, what I offer Computerstat is a unique set of proven skills and experience that can meld the two organizations into a stronger and more profitable company in 12 to 18 months.
“And Bill,” added Frank, “Hal and I don’t want to walk out of this room on Friday without a recommendation for a new president for Computerstat that we can present to the full board. Time is of the essence here.”
THE MEETING
Hal Benning closed the door to his office, and turned to address the three men seated at the conference table. “First, I’d like to thank George for coming. I’m sure his insights will be quite helpful. Before we get to the matter, I’d like to tell you about an incident that occurred yesterday afternoon. Leo Hainsworth, the manager of our Houston plant, called. It appears that there’s been a lot of speculation about who the next president will be. Anyway, Leo made it quite clear that both he and John Stearns, Computerstat’s new vice president of R&D, feel they can work well with Tom Banks, but that if someone else is chosen all hell may break loose. He didn’t put it that way, but his tone was clear.”
“I don’t know that we are going to make everyone happy here or that we should necessarily try,” interjected Frank. “After reviewing the flies, I’m leaning toward Sheila Covington. I think she offers a fresh and proactive strategy for Computerstat that will enable the company to compete effectively into the next decade. She seeks out opportunity aggressively, and is the only candidate who seems to understand that we are competing in an international rather than a national market. That’s the sort of vision this company needs if it is to grow in this industry.”
“I disagree, Frank,” said Hal. “We’ve differed before and have come to some pretty good decisions.”
“That’s true, but only after I brought you back to your senses,” needled Frank. “You like Tom Banks.”
“Yes, I do. Am I that predictable?”
“Only to me,” Frank laughed.
“Don’t get me wrong, I like Covington, but after six months she still owns her house in California. She rents and apartment here, but flies back every weekend to see her fiancé. Tom Banks is stable. His track record reflects a highly competent and balanced manager. He’s conservative and he doesn’t make mistakes. His abilities and approach largely determined Home Computer’s past success and I think the course he advocates is the most responsible and reasonable for the future. Tom Banks talks about what he knows, and I trust him with the company. He’s not oblivious to the changes and globalization of the market place, but he dies understand that you can’t put the cart before the horse. I sense we might be at an impasse on this one, Frank.”
“Bill, what do you think?” prodded Frank, his voice rising uncharacteristically.
“Well gentlemen, I’m not sure I’m going to be of much help because my inclination is to go with Carl Ferris. I think you need to consider the priorities of the merger. Carl is the most qualified to see the integration through. He’s proven he’s capable of pulling off a merger, and his selection would only send a clear signal that Computerstat is no longer about either the old Home Computer or Microstat.” Until the two companies are truly unified, all this talk about product rationalization, costs, technological innovation, or expansion in foreign markets is meaningless.
“But look at Tom’s track record! Anyway, Ferris is not committed to the original schedule,” growled Hal.
“He may be the only candidate with either enough foresight or courage to give the bad news,” Bill responded.
“I don’t see how either Banks or Ferris can provide a viable long-term focus for the company,” argued Frank. “Only Sheila Covington has a clear vision for growth.”
“OK, OK,” called Hal. “We all agree that we disagree. George, we still haven’t heard from you. How do you see it?”
“From what I’ve heard, I’m convinced that the reason for the lack of consensus is that the right person is not in this group of three.” George cleared his throat, and continued in a low but impassioned voice. “Ellis Ross has been groomed for this position for the past six years, he not only expects the position, but has refused some attractive offers from the competition with the expectation that he would succeed me. Since joining us eleven years ago, Ellis has served five years as comptroller, four years heading up our strategic planning staff, and the past two as our chief financial officer.”
“But Ellis is a staff man; he doesn’t have any line experience,” Hal challenged.
“That’s true. On the other hand, he’s extremely intelligent and is very well read. His analytical skills are extraordinary, and he’s able to synthesize his knowledge of finance, operations, and strategic planning into cohesive action plans. That’s what division needs – a solid generalist with experience at the top, someone who understands the big picture. I’m convinced that Ellis is this person.”
It was his idea to buy out Microstat, and it was a good idea. He knows both companies intimately and he knows how all the pieces should fit together. Any problems we’ve had with implementing Ellis’s plan are my doing. Perhaps if I had let him run with the ball we would be faring better.”
“It’s not in his nature to push his superiors toward his position, but he certainly isn’t weak-willed either. He’s a company man. He fully exercises the authority given to him, but he respects the word of his superiors. He’s a quiet, analytical type, but given the responsibility, he will see this thing through. Anyway, I told Ellis a year ago that if he stayed, he would succeed me as president.”
“You did what?!” Frank scowled.
“The recommendation of the president has always been followed in the past,” explained George, “but the point is that Ellis is the only one who really understands Computerstat as a whole. If he’s passed over, you’ll lose him. Besides, this is a job for a younger man,” confessed George. “Ellis is 43 and in excellent health. He’s divorced, you know. No children. He’s got the vitality, drive, and singular commitment needed for this job.”
”We certainly don’t want to lose Ross,” said Hal, “but I question whether his reserved manner makes him ideally suited for this job.”
“If this discussion has shed light on anything, it’s that none of the candidates can claim the distinction,” Frank mused. “But I just don’t feel comfortable with Ross. We need to signal to both the employees and the shareholders that we’re taking a new tack.”
“Computerstat needs a fresh start,” conceded George, “but it also needs continuity. Ellis would serve as an effective linchpin to guide the division through transition.”
“Okay, maybe you’re right and we should have considered Ross from the outset, but that doesn’t change the fact that we need to find some common ground if we are going to be able to come to a consensus,” complained Hal.
“I think you’ve pointed out a key issue here,” observed Bill. “As things are, we could debate the merits of each candidate for a month, but one of the crucial elements of this process is that it has to be quick.” Bill slid back in his chair and continued. “What I perceive is that each of us is working with a different set of assumptions. Hal, you consider past performance critical. Hence, you choose Tom Banks. Frank, you, on the other hand, believe that Sheila Covington is most capable of achieving what you think is most important, future growth. From my perspective, the overriding concern is the integration program, and, as I said, Carl Ferris is uniquely qualified in that respect. Now, we must seriously consider Ellis Ross; what can he contribute in the way of general management skills and continuity, and whether you are willing to lose him. Anyway, if we are going to reach an agreement, it will necessary to identify some common ground, as Hal put it. To find this common ground maybe we should focus less on the candidates and more on the criteria by which they should be evaluated. If we can come to an agreement on that, then the logical choice should become clear.”
“The best predictor of future performance is fast performance,” argued Hal. “Talk about vision for the future is good but it is nothing to bet the company on. It’s not real. The past we know with certainty.”
“I think you’re missing the point, Hal,” retorted Frank. “It’s a changing world and the only thing we know with certainty is that it will continue to change. Old Man Wrentham was a legend in his time, but he would be lost today. The future is uncertain and that implies risk. A vision for the future addresses that reality.”
“And what of the merger, gentlemen?” began Bill. “I say the ability to manage this merger is most important. If Computerstat is unable to jump this first hurdle, neither a solid track record nor a vision for future growth is going to make much difference.”
“True enough, but without some solid continuity at the top, the division will muddle along regardless of what ‘tack’ you choose,” argued George.
“Frank and I hoped to make our selection today, but it’s now apparent that this decision is more difficult than we foresaw,” observed Hal. “Perhaps we should think about this some more and get back together in a couple of days to decide what selection criteria are most important, why, and which candidate best fits those criteria.”
CONCLUSION
What then is the most important criterion for the selection of the president of Computerstat? Is it past performance, vision for future growth, the ability to integrate the two merged companies, or a balance between top management skills and the ability to provide continuity? Given this assessment, who should be the next president of Computerstat?
Crisis at Wrentham Corporation
1.) Summary of Facts (one paragraph)
2.) Individuals involved by name and position
3.) Key issues of merger and selection of president:
a) Merger Issues
b) President Selection Issues
Crisis at Wrentham Corporation
4.) Strengths and Weaknesses of Candidates
Tom Banks
Strengths
Weaknesses
Sheila Convington
Strengths
Weaknesses
Carl Ferris
Strengths
Weaknesses
Other Possible Candidate(s)
_____________________________________________________________________________
5.) Can you think of any other possible actions that might be useful?
6.) Decision and justification
Strengths
Weaknesses
Explanation / Answer
Summary of Facts (one paragraph)
Ans: Merger happened between computerstat and microstat. Still integration is behind schedule. People from each of the division don’t share a common vision for merged unit. Computerstat believes in cost efficiency while Microstat believes in top line and growth. The absence of synergy is costing the corporation as it has to report one more bad quarter to the market. The low-end marketers are beating us on price and the market leaders have superior products.George Steele, current division head would be resigning as the likely failure of the merger can damage his career. Top management of Wrentham Corporation has to decide the successor of George and the person should complete the integration and make the division profitable.
Individuals involved by name and position
Ans: Hal Benning:- CEO of Wrentham Corporation, Frank Powell:- Chairman of the board, Bill Brandt:- Ex-Director of Human Resources and George Steele:- Outgoing Division head of Computerstat
Key issues of merger and selection of president:
a) Merger Issues
Ans: The merger issues are due to Computerstat believes in cost efficiency and want to cut costs and believe domestic market as bread and butter while reluctant to test international waters. Microstat believes in penetrating foreign markets as they believe this move is needed for growth, profitability and survival. Floor people of one sub-division are not trusting process engineers of other sub-division. Computersoft is blaming Microstat for its performance issues. The lack of unity is leading this merger to a failure
b) President Selection Issues
Ans: With the president of the merged unit quitting, there is need for selecting a new person to take this merger ahead and lead the merged unit to growth and profitability. However, each decision maker in this process are supporting different candidates and thus consensus is not being reached.
4.) Strengths and Weaknesses of Candidates
Tom Banks
Strengths
Weaknesses
Likes to get involved in the factory floor
Dogmatic and Inflexible
Brought cost effectiveness and operational efficiency in plants
Will delay our entry in International markets
His plan would strengthen our domestic market
Our product line may get reduced
We may become cost leaders in market
May change the Microstat style to assimilate into Computerstat which may kill the purpose of merger
Has support of Computerstat people
Has pessimistic view of Market
Sheila Convington
Strengths
Weaknesses
Believes in international expansion which is consistent with company’s vision
She is believed to be ignorant about cost controls
Knows European Languages
Marketer than Operating Manager
Great following in Sales, manufacturing and R&D
Risk taker
Believe in strong top line which market and shareholders also love
Can Spend only 5 days of the time to the division
Can take the Computerstat’s low end computers to foreign markets
Computerstat people may not accept her as they want only Tom
Carl Ferris
Strengths
Weaknesses
Had completed successful merger
No experience in Computers division
Strongly believe in synergy to achieve market leadership
Would be a lateral move for him and he may leave the division for COO post
Neutral to both sub-divisions
Not committed to original schedule
Was able to take painful decisions
Longer period of negative results would affect his credibility
Encourage managers to take different point of view
Computersoft people may not accept the decision
Would meld two division without bias
Has strength to provide bad news to Market
Other Possible Candidate(s)
Ellis Ross who has been groomed for President post since 6 years
5.) Can you think of any other possible actions that might be useful?
Ans. We can take the plan of action from Tom and Sheila how they will bring synergy into the division esp. in Factory and R&D teams with minimum loss of resources. We can take the commitment from all the three on the turnaround time and the revenue guidance they can provide to the shareholders
6.) Decision and justification
Ans. I would go with Dual Leadership structure. I will make Carl Ferris as Turnaround leader to integrate the units. He would be also groomed for COO. Shiela will be our next President who will take the division ahead into new markets and secure the division’s future for next decade. She is the right person for the division as her vision is consistent with view of company’s. We will try to retain Ellis Ross. This may be a hard decision on Computersoft but this decision is needed for company’s survival.
Strengths
Weaknesses
Likes to get involved in the factory floor
Dogmatic and Inflexible
Brought cost effectiveness and operational efficiency in plants
Will delay our entry in International markets
His plan would strengthen our domestic market
Our product line may get reduced
We may become cost leaders in market
May change the Microstat style to assimilate into Computerstat which may kill the purpose of merger
Has support of Computerstat people
Has pessimistic view of Market
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