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CASE: 1 GEORGE DAVID
George David has been CEO of United Technologies Corporation (UTC) for
more than a decade. During that time he has received numerous accolades and
awards for his performance as a CEO. Under his leadership UTC, a $343 billion
conglomerate whose operating units include manufacturers of elevators (Otis
Elevator), aerospace products (including Pratt & Whitney jet engines and
Sikorsky helicopters), air conditioning systems, and fire and security systems,
has seen earnings grow at 10–14 percent annually—impressive numbers for any
company but particularly for a manufacturing enterprise.
According to David, a key to United
Technologies’ success has been sustained improvements in productivity and
product quality. The story goes back to the 1980s when David was running the
international operations of Otis Elevator. There he encountered a Japanese
engineer, Yuzuru Ito, who had been brought in to determine why a new elevator
product was performing poorly. David was impressed with Ito’s methods for
identifying quality problems and improving performance. When he was promoted to
CEO, David realized that he had to lower the costs and improve the quality of
UTC’s products. One of the first things he did was persuade Ito to work for him
at UTC. Under David, Ito developed a program for improving product quality and
productivity, known as Achieving Competitive Excellence (ACE), which was
subsequently rolled out across UTC. The ACE program has been one of drivers of
productivity improvements at UTC ever since.
Early in his tenure as CEO, David also
radically reorganized UTC. He dramatically cut the size of the head office and
decentralized decision making to business divisions. He also directed his
accounting staff to develop a new financial reporting system that would give
him good information about how well each division was doing and make it easier
to hold divisional general managers accountable for the performance of the
units under them. He then gave them demanding goals for earnings and sales growth
and pushed them to improve processes within their units by implementing the ACE
program.
At the same time David has always stressed
that management is about more than goal setting and holding people accountable.
Values are also important. David has insisted that UTC employees adhere to the
highest ethical standards, that the company produce that have minimal
environmental impact, and that employee safety remain the top consideration in
the work-place.
When asked what his greatest achievement as a
manager has been, David refers to UTC’s worldwide employee scholarship program.
Implemented in 1996 and considered the hall-mark of UTC’s commitment to
employee development, the program pays the entire cost of an employee’s college
or graduate school education, allows employees to pursue any subject at an
accredited school, provides paid study time, and awards UTC stock (up to
$10,000 worth in the United States) for completing degrees. Explaining the
program, David states, “One of the obligations that an employer has is to give
employees opportunities to better themselves. And we feel it’s also very good
business for us because it generates a better workforce that stays longer.”
David states that one of his central tasks
has been to build a management team that functions smoothly over the long term.
“People come to rely upon each other,” he says. “You have the same trusting
relationships. You know people; they know you. You can predict them; they can
predict you. All of that kind of begins to work, and it accelerates over the
tenure of a CEO. If you have people bouncing in and out every two to three
years, that’s not good.”
According to Sandy Weill, former chairman of
Citicorp and a UTC board member, David has the right mix of toughness and
sensitivity. “When somebody can't do the job he’ll try to help; but if that
person is not going to make it work, that person won't be on the job forever.”
At the same time Weill says, “He does a lot of things that employees respect
him for, I think he is a very good manager. Even though David is demanding, he
can also listen—he has a receive mode as well as a send mode.”
Questions
1.
What
makes George David such a highly regarded manager?
2.
How does
David get things done through people?
3.
What
evidence can you see of David’s planning and strategizing, organizing,
controlling, leading, and developing?
4.
Which
managerial competencies does David seem to posses? Does he seem to lack any?
CASE: 2 BOOM AND BUST IN TELECOMMUNICATIONS
In 1997 Michael O'Dell, the chief scientist at World-Com, which owned
the largest network of “Internet backbone” fiber optic cable in the world,
stated that data traffic over the Internet was doubling every hundred days.
This implied a growth rate of over 1,000 percent a year. O'Dell went on to day
that there was not enough fiber optic capacity to go around, and that “demand
will far outstrip supply for the foreseeable future.”
Electrified by this potential opportunity, a
number companies rushed into the business. These firms included Level 3
Communications, 360 Networks, Global Crossing, Qwest Communications, World-Com,
Williams Communications Group, Genuity Inc., and XO Communications. In all
cases the strategic plans were remarkably similar: Raise lots of capital, build
massive fiber optic networks that straddled the nation (or even the globe), cut
prices, and get ready for the rush of business. Managers at these companies
believed that surging demand would soon catch up with capacity, resulting in a
profit bonanza for those that had the foresight to build out their networks. It
was a gold rush, and the first into the field would stake the best claims.
However, there were dissenting voices. As
early as October 1998 an Internet researcher at AT&T Labs named Andrew
Odlyzko published a paper that de-bunked the assumption that demand for
Internet traffic was growing at 1,000 percent a year. Odlyzko’s careful
analysis concluded that growth was much slower—only 100 percent a year!
Although still large, that growth rate was not nearly large enough to fill the
massive flood of fiber optic capacity that was entering the market. Moreover,
Odlyzko noted that new technologies were increasing the amount of data that
could be sent down existing fibers, reducing the need for new fiber. But with
investment money flooding into the market, few paid any attention to him.
WorldCom was still using the 1,000 percent figure as late as September 2000.
As it turned out, Odlyzko was right. Capacity
rapidly outstripped demand, and by late 2002 less than 3 percent of the fiber
that had been laid in the ground was actually being used! While prices slumped,
the surge in volume that managers had bet on did not materialize. Unable to
service the debt they had taken on to build out their networks, company after
company tumbled into bankruptcy—including WorldCom, 360 Networks, XO
Communications, Global Crossing. Level 3 and Qwest survived, but their stock
price had fallen by 90 percent, and both companies were saddled with massive
debts.
Questions
1.
Why did
the strategic plans adopted by companies like Level 3, Global Crossing, and 360
Networks fail?
2.
The
managers who ran these companies were smart, successful individuals, as were
many of the investors who put money into these businesses. How could so many
smart people have been so wrong?
3.
What
specific decision-making biases do you think were at work in this industry
during the late 1990s and early 2000s?
4.
What
could the managers running these companies done differently that might have led
to a different outcome?
CASE: 3 DOW CHEMICAL
A handful of major players, compete head-to-head around the world in
the chemical industry. These companies are Dow Chemical and Du Pont of the
United States, Great Britain’s ICI, and the German trio of BASF, Hoechst AG,
and Bayer. The barriers to the free flow of chemical products between nations
largely disappeared in the 1970s. This, along with the commodity nature of bulk
chemicals and a severe recession in the early 1980s, ushered in a prolonged
period of intense price competition. In such an environment, the company that
wins the competitive race is the one with the lowest costs. Dow Chemical was
long among the cost leaders.
For years Dow’s managers insisted that part
of the credit belonged to its “matrix” organization. Dow’s organizational
matrix had three interacting elements: functions (such as R&D,
manufacturing, and marketing), businesses (like ethylene, plastics, and
pharmaceuticals), and geography (for example, Spain, Germany, and Brazil).
Managers’ job titles incorporated all three elements (plastics marketing
manager for Spain), and most managers reported to at least two bosses. The
plastics marketing manager in Spain might report to both the head of the
worldwide plastics business and the head of the Spanish operations. The intent
of the matrix was to make Dow operations responsive to both local market needs
and corporate objectives. Thus the plastics business might be charged with
minimizing Dow’s global plastics production costs, while the Spanish operation
might determine how best to sell plastics in the Spanish market.
When Dow introduced this structure, the
results were less than promising: Multiple reporting channels led to confusion
and conflict. The many bosses created an unwieldy bureaucracy. The overlapping
responsibilities resulted in turf battles and a lack of accountability. Area
managers disagreed with managers overseeing business sectors about which plants
should be built where. In short, the structure, didn’t work. Instead of
abandoning the structure, however, Dow decided to see if it could made more
flexible.
Dow’s decision to keep its matrix structure
was prompted by its move into the pharmaceuticals business is very different
from the bulk chemicals business. In bulk chemicals, the big returns come from
achieving economies of scale in production. This dictates establishing large
plants in key locations from which regional or global markets can be served.
But in pharmaceuticals, regulatory and marketing requirements for drugs vary so
much from country to country that local needs are far more important than
reducing manufacturing costs through scale economies. A high degree of local
responsiveness is essential. Dow realized its pharmaceutical business would
never thrive if it were managed by the same priorities as its mainstream
chemical operations.
Accordingly, instead of abandoning its
matrix, Dow decided to make it more flexible to better accommodate the
different businesses, each with its own priorities, within a single management
system. A small team of senior executives at headquarters helped set the
priorities for each type of business. After priorities were identified for each
business sector, one of the three elements of the matrix—function, business, or
geographic area—was given primary authority in decision making. Which element
took the lead varied according to the type of decision and the market or
location in which the company was competing. Such flexibility that all
employees understand what was occurring in the rest of the matrix. Although this
may seem confusing, for years Dow claimed this flexible system worked well and
credited much of its success to the quality of the decisions it facilitated.
By the mid-1990s, however, Dow had refocused
its business on the chemicals industry, divesting itself of its pharmaceutical
activities where the company’s performance had been unsatisfactory. Reflecting
the change in corporate strategy, in 1995 Dow decided to abandon its matrix
structure in favor of a more streamlined structure based on global product
divisions. The matrix structure was just too complex and costly to manage in
the intense competitive environment of the time, particularly given the
company’s renewed focus on its commodity chemicals where competitive advantage
often went to the low-cost producer. As Dow’s then-CEO put it in a 1999
interview, “We were an organization that was matrixed and depended on teamwork,
but there was no one in charge. When things went well, we didn’t know whom to
reward; and when things went poorly, we didn’t know whom to blame. So we
created a global divisional structure and cut out layers of management. There
used to be eleven layers of management between me and the lowest-level
employees; now there are five.
Questions
1.
Why did
Dow Chemical first adopt a matrix structure? What benefits did it hope to
derive from this structure?
2.
What
problems emerged with this structure? How did Dow try to deal with them? In
retrospect, do you think those solutions were effective?
3.
Why did
Dow change its structure again in the mid-1990s? What was Dow trying to achieve
this time? Do you think the current structure makes sense given the industry in
which Dow operates and the strategy of the firm? Why?
CASE: 4 REBRANDING MCJOBS
As with most fast-food restaurant chains, McDonald’s needs more people
to fill jobs in its vast empire. Yet McDonald’s executives are finding that
recruiting is a tough sell. The industry is taking a beating from an
increasingly health-conscious society and the popular film Supersize Me. Equally troublesome is a further decline in the
already dreary image of employment in a fast-food restaurant. It doesn’t help
that McJob, a slang term closely
connected to McDonald’s, was recently added to both Merriam-Webster’s Collegiate Dictionary and the Oxford English Dictionary as a
legitimate concept meaning a low-paying, low-prestige, dead-end, mindless
service job in which the employee’s work is highly regulated.
McDonald’s has tried to shore up its
employment image in recent years by improving wages and adding some employee
benefits. A few years ago it created the “I’m loving it” campaign, which took
aim at a positive image of the golden arches for employees as well as
customers. The campaign had some effect, but McDonald’s executives realized
that a focused effort was needed to battle the McJob image.
Now McDonald's is fighting back with a “My
First” campaign to show the public—and prospective job applicants—that working
at McDonald's is a way to start their careers and develop valuable life skills.
The campaign’s centerpiece is a television commercial showing successful people
from around the world whose first job was at the fast-food restaurant. “Working
at McDonald's really helped lay the foundation for my career,” says ten-time Olympic
track and field medalist and former McDonald's crew member Carl Lewis, who is
featured in the TV ad. “It was the place where I learned the true meaning of
excelling in a fast-paced environment and what it means to operate as part of a
team.”
Richard Floersch, McDonald's executive vice
president of human resources, claims that the company’s top management has deep
talent, but the campaign should help to retain current staff and hire new
people further down to hierarchy. “It’s a very strong message about how when
you start at McDonald's, the opportunities are limitless,” says Floersch. Even
the McDonald's application form vividly communicates this message by showing a
group of culturally diverse smiling employees and the caption “At McDonald's
You Can Go Anywhere!”
McDonald's has also distributed media kits in
several countries with factoids debunking the McJob myth. The American
documentation points out that McDonald's CEO Jim Skinner began his career
working the restaurant’s front lines, as did 40 percent of the top 50 members
of the worldwide management team, 70 percent of all restaurant managers, and 40
percent of all owner/operators. “People do come in with a ‘job’ mentality, but
after three months or so, they become evangelists because of the leadership and
community spirit that exists in stores,” says David Fairhurst, the vice
president for people at McDonald's in the United Kingdom. “For many, it’s not a
job, but a career.”
McDonald's also hopes the new campaign will
raise employee pride and loyalty, which would motivate the 1.6 million staff
members to recruit more friends and acquaintances through word of mouth. “If
each employee tells just five people something cool about working at
McDonald's, the net effect is huge,” explains McDonald's global chief marketing
officer. So far the campaign is having the desired effect. The company’s
measure of employee pride has increased by 14 percent, loyalty scores are up by
6 percent, and 90-day employee turnover for hourly staff has dropped by 5
percent.
But McDonald's isn't betting on its new
campaign to attract enough new employees. For many years it has been an
innovator in recruiting retirees and people with disabilities. The most recent
innovation at McDonald's UK, called the Family Contract, allows wives,
husbands, grandparents, and children over the age of 16 to swap shifts without
notifying management. The arrangement extends to cohabiting partners and
same-sex partners. The Family Contract is potentially a recruiting tool because
family members can now share the same job and take responsibility for
scheduling which family member takes each shift.
Even with these campaigns and human resource
changes, some senior McDonald's executives acknowledge that the entry-level
positions are not a “lifestyle” job. “Most of the workers we have are
students—it’s a complementary job,” says Denis Hennequin, the Paris-based
executive vice president for McDonald's Europe.
Questions
1.
Discuss
McDonald's current situation from a human resource planning perspective.
2.
Is
McDonald's taking the best approach to improving its employer brand? Why or why
not? If you were in charge of developing the McDonald's employer brand, what
would you do differently?
3.
Would
“guerrilla” recruiting tactics help McDonald's attract more applicants? Why or
why not? If so, what tactics might be effective?
CASE: 5 TRANSFORMING REUTERS
London-based Reuters is a venerable company. Established in 1850 and
devoted to delivering information around the world by the fastest means
available—which in 1850 meant a fleet of 45 carrier pigeons—by the late 1990s
the company had developed into one of the largest providers of information in
the world. Although Reuters is known best to the public for its independent,
unbiased news reporting, 90 percent of Reuters’ revenues are generated by
providing information to traders in financial markets. In the 1990s the company
used a proprietary computer system and a dedicated telecommunications network
to deliver real-time quotes and financial information to Reuters
terminals—devices that any self-respecting financial trader could not function
without. When Reuters entered the financial data business in the early 1970s,
it had 2,400 employees, most of them journalists. By the late 1990s its
employee base had swelled to 19,000 most of whom were on the financial and
technical side. During this period of heady growth Reuters amassed some 1,000
products, often through acquisitions, such as foreign-language data services,
many of which used diverse and sometimes incompatible computer delivery
systems.
The late 1990s were the high point for
Reuters. Two shocks to Reuters’ business put the company in a tailspin. First
came the Internet, which allowed newer companies, such as Thompson Financial
Services and Bloomberg, to provide real-time financial information to any
computer with an Internet connection. Suddenly Reuters was losing customers to
a cheaper and increasingly ubiquitous alternative. The Internet was
commoditizing the asset on which Reuters had built its business: information.
Then in 2001 the stock market bubble of the 1990s finally broke; thousands of
people in financial services lost their jobs; and Reuters lost 18 percent of
its contracts for terminals in a single year. Suddenly a company that had
always been profitable was losing money.
In 2001 Reuters appointed Tom Glocer as CEO.
The first nonjournalist CEO in the company’s history, Glocer, an American in a
British-dominated firm, was described as “not part of the old boys’ network.” Glocer
had long advocated that Reuters move to an Internet-based delivery system. In
2000 he was put in charge of rolling out such a system across Reuters but met
significant resistance. The old proprietory system had worked well, and until
2001 it had been extremely profitable. Many managers were therefore reluctant
to move toward a Web-based system that commoditized information and had lower
profit margins. They were worried about product cannibalization. Glocer’s
message was that if the company didn’t roll out a Web-based system, Reuters’
customers would defect in droves. In 2001 his prediction seemed to be coming
true.
Once in charge, Glocer again pushed an
Internet-based system, but he quickly recognized that Reuters’ problems ran
deeper. In 2002, the company registered its first annual loss in history, £480
million, and Glocer described the business as “fighting for survival.”
Realizing that dramatic action was needed, in February 2003 Glocer launched a
three-year strategic and organizational transformation program called Fast
Forward. It was designed to return Reuters to profitability by streamlining its
product offering, prioritizing what the company focused on, and changing its
culture. The first part of the program was an announcement that 3,000 employees
(nearly 20 percent of the workforce) would be laid off.
To change its culture Reuters added an
element to its Fast Forward program known as “Living Fast,” which defined key
values such as passionate and urgent working, accountability, and commitment to
customer service and team. A two-day conference of 140 managers, selected for
their positions of influence and business understanding rather than their
seniority, launched the program. At the end of the two days the managers
collectively pledged to buy half a million shares in the company, which at the
time were trading at all-time low.
After the conference the managers were fired
up; but going back to their regular jobs, they found it difficult to convey
that sense of urgency, confidence, and passion to their employees. This led to
the development of a follow-up conference: a one-day event that included all
company employees. Following a video message from Glocer and a brief summary of
the goals of the program, employees spent the rest of the day in 1,300
cross-functional groups addressing challenges outlined by Glocer and proposing
concrete solutions. Each group chose one of “Tom’s challenges” to address. Many
employee groups came up with ideas that could be rapidly implemented—and were.
More generally, the employees asked for greater clarity in product offerings,
less bureaucracy, and more accountability. With this mandate managers launched
a program to rationalize the product line and streamline the company’s
management structure. In 2003 the company had 1,300 products. By 2005 Reuters
was focusing on 50 key strategic products, all delivered over the Web. The
early results of these changes were encouraging. By the end of 2004 the company
recorded a £380 million profit, and the stock price had more than doubled.
Questions
1.
What
technological paradigm shift did Reuters face in the 1990s? How did that
paradigm shift change the competitive playing field?
2.
Why was
Reuters slow to adopt Internet-based technology?
3.
Why do
you think Tom Glocer was picked as CEO? What assets did he bring to the
leadership job?
4.
What do
you think of Glocer’s attempts to change the strategy and organizational
culture at Reuters? Was he on the right track? Would you do things differently?
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