Case 5 Writeup

Case #5: Automation Consulting Services

As ACS continues to grow, it is important that the founders address the issues that are occurring in every office due to a decentralized business model with a lack of control mechanisms. As would be expected within a decentralized business model, empowerment has been an extremely important part of the strategic management of ACS, and it has worked extraordinarily well in the past because the founders were able to spread their client philosophy and business style throughout the organization while it was relatively small. However, as the organization expanded from Boston into the other three markets (San Jose, Detroit, and Philadelphia), the organizational philosophy that applied to small businesses no longer applied to their new, expanded organization. Therefore, ACS was faced with the issue of balancing the two concepts of empowerment and control. Formal management systems must be instituted without destroying the entrepreneurial spirit that has allowed their organization to flourish though the years. Long-term solutions must consider an entire renovation of strategic objectives, a revamped mission statement, and implementation of the four levers of control. Organizational communication will be key to the implementation of the long-term strategy. But before addressing the long-term solutions, it is important to focus on shortterm crisis control in each of the four regional offices. Short-term fixes will only be temporary, so that the organization can buy itself some time to work out a long-run solution to the various issues raised in the founders’ August 2010 meeting. These issues include questionable billing practices, lack of a business development plan, inability to control bids for certain questionable projects, rising expense categories at the office level, and incentive plan problems. These issues ultimately stemmed from a lack of control in the business processes at the independent offices. The founders are very attached to the system that has brought them so much success: decentralized, substantial independence. However, there comes a point in time when decentralization must be balanced with formal systems to assure management that the business units are operating with the strategic objectives of the organization in mind. San Jose Office short-term  • The issues in this office include the questionable actions undertaken by Partner Douglas Crowley and approved by Managing Partner Kyle Ross. He decided that when a job was significantly below the contract price ceiling, it was necessary to "crosssubsidize" and raise the price of this particular job to cover expenses in other jobs that were over budget. • This problem stemmed from the relatively new personnel in the San Jose office that were not given any guidance on billing practices and business policies. The blame lies at the top of the organization, as they should communicate some form of guidance and enforce policies that are in the best interest of the business as a whole.

This action was not in line with the long-term objective of building strong client relationships. However, the founders had never set guidelines for general business conduct or selling and billing practices. These guidelines must be addressed in the longterm strategy; however, the short-term fix for these actions were much more crucial to the direction of the company. • The founders wanted to punish this action, but did not want to kill entrepreneurial spirit. Their traditionally hands-off management style prevented them from having a firm basis of punishment, and any punishment may threaten the relationships between the partners. • The proper way to manage this crisis is to hold an interactive meeting with Crowley and Ross and discuss the implications of their actions. Publicly punishing them would not only threaten the relationship between the founders and the San Jose office, but it may also cause the other partners to overreact and question the principles on which the company was founded. Instead, these two men must realize that they were out of line with organizational strategy and that their billing practices were not acceptable within the constructs of the ACS business model. • Next, the cross-subsidy fees that were charged to Powerhouse should be returned immediately. ACS should reveal to them that there was a billing error due to a difference in management philosophies between the founders and the newly acquired San Jose branch. If ACS was to act according to their strategic objective to establish strong client relationships, they would be upfront and truthful with Powerhouse and hope that they would understand and move forward with the project. •

Detroit Office short-term  • Detroit's problems arose from a lack of demand for their services, as well as the lack of a business development plan. Within two month's, half of their office's professional staff would have no billable work, resulting in a utilization of zero percent. Instead of focusing on a business development plan, the Detroit office had been focusing on three large existing projects, with the hope that they would follow up with additional jobs. When no additional projects were materialized, this office faced a huge problem. Prospecting and utilization are two metrics that should be monitored closely and frequently. The founders realized that financial incentives alone are not a foolproof way to control utilization. • To ease this problem in the short term, the founders must proceed with their threestep crisis plan which includes a reassignment of Detroit consultants, a development of a new marketing plan to stimulate business, and the transfer of a partner from Boston with particularly strong selling skills. • This crisis plan is only a temporary fix, and the long-term solution lies in the development of a new strategic philosophy, which includes an interactive client prospecting system (discussed below). Boston Office short-term 

Boston's problems arose from a lack of experience in service sector jobs. When this office decided to undertake a job for a library, they ran way over budget and over time, and ended up having to subcontract some of the work to an outside specialist. The other problem was the lack of control when it came to overseeing bids for questionable projects, which typically were not in line with the firm’s existing skill base, which is to focus on manufacturing. However, recent trends and opportunities in the environment have caused increasing interest in the service sector. • Decentralization without control was the direct cause of the two problems in the Boston office. Boundaries must be presented to the offices that clearly define what constitutes a good job, and what constitutes a bad job. Otherwise, the discretion is at the hands of lower level employees, who could ultimately cost the firm a large sum of money. If the firm is to proceed in a different strategic direction, and attempt to capitalize on the growing service industry, then these objectives must also be communicated down the line of decentralization. • The short-term fix for the Boston office is to restrict jobs that fit within the core business of ACS. The long-term strategy must address the opportunities that lie in the service sector, as well as a formal planning strategy, but short-term focus should be on sticking to jobs that fit within the skill set and strategic focus of the company, until there is a time when the strategic focus is revised. •

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Philadelphia Office short-term  Philadelphia's problem could be an issue that plagues the entire firm. The strict focus on revenues, at the exclusion of expenses, had allowed expense categories at the office level to increase uncontrollably. Also, there was an increase in reported expenses under the category of "Other Expenses," which could apply to anything. The problems arise out of the operation of each office as a revenue center, rather than a profit center. The managers at each office are more focused on increasing revenue, because that it what the firm states in its objectives, and also is what determines their compensation. They have no incentive to cut costs. The long-term solution is to figure out a strategy to control expenses and promote ethical behavior and perhaps reassess the strict revenue focus. The short term-solution is to perhaps add the expenses into the incentive system of the divisions. The reasons for this (rising costs, slowing growth rate, etc.) should be communicated to the managers so that they know the reasons for this quick change. Eventually, expenses must be budgeted and monitored closely, but this would involve a change in culture. So for the short term, incentives should be tied to profit to promote cost control as well as revenue growth.

Long Run Solutions

A long-term plan for ACS will involve a revision of strategic objectives and the implementation of more formal management systems and procedures. The new strategic objectives of ACS, as stated in the case, include: identifying and maintaining a unified company strategy and image, maintaining a high and profitable growth rate, communicating goals and responsibilities to employees, effectively motivating and monitoring performance, and facilitating the sharing of knowledge and ideas among offices. These objectives will give a new direction to the organization as a whole, as they attempt to balance the traditional decentralized structure based on empowerment and the new control mechanisms that must be implemented. Communication at all levels of the organization is key to the success of ACS going forward. The founders must insist that this is the proper thing to do because the business is becoming too complex to manage with limited controls. All partners must be involved in the process of selecting which controls within the four levers are closely related to organizational strategy. The following is an explanation of the four levers of control that will form the foundation of the long-term strategy of ACS. Four Levers of Control: Diagnostic systems, Belief systems, Boundary systems, and Interactive systems.

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Diagnostic systems Include profit plans, budgets, goals, and objectives; measured periodically, at the discretion of management Keep critical performance variables within preset limits Eliminate the burden of constant monitoring Track progress of individual offices Monitor goals and targets as you progress toward them Open this system for feedback from partners Not adequate without the support from the other three levers Belief system The belief system communicates the core values of the organization to management so that they are inspired to act in the best interest of the organization as a whole As the complexity of ACS increases, it is important to revise the mission statement with reverence to the core values and beliefs of the organization; should be agreed upon by all partners This is probably the most important control system for ACS, because without a formal beliefs system, employees in this decentralized organization may not have a clear understanding of the core values of the business This control system inspires employees to maintain entrepreneurial sprit and search for new ways of creating value

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Boundary system Essential control system to support the belief system ACS should implement this control system to communicate what the different offices should NOT do, rather than what TO do, to maintain entrepreneurial sprit while establishing the activities that are off limits Establishing ethical and strategic boundaries allows innovation within clearly defined limits Maintaining growth and strong client relationships (strategic objective) relies upon trust and reputation The founders must anticipate the inevitable temptations and pressures that arise from a complex, decentralized organization such as ACS and spell out the rules clearly and unambiguously. This code of conduct will be especially important in the San Jose/Philadelphia (ethical code of conduct) and Detroit (strategic code of conduct) offices The boundary system should establish direction, motivate and inspire, and protect against damaging behavior Interactive control system Decentralization causes top managers to loose contact with people within the organization Interactive control systems respond to this problem by developing formal meetings to share emerging info such as technological breakthroughs and threats to the organization These are scanning mechanisms that identify patterns of change and adjust strategies in a changing market This system has already been discussed by the founders, and they called it the project management system Significant innovations can result from these face-to-face meetings with executives to deal with unexpected downturns This system will be particularly important in addressing the issues raised in the Boston office about the opportunities in the service sector

San Jose long-term  • This will perhaps be the toughest office to implement a long run strategy. This newly acquired office contains individuals that were not employees of ACS from the beginning, and they have many practices and principles that are not in line with the strategic objectives of ACS. • Employee learning and growth should form the beginning of San Jose's long-term plan. These employees must learn about ACS and the business principles on which it was founded. They must also be motivated to act in a desirable way for the company as a whole. Perhaps a weekend retreat could provide a fun/learning experience for the employees at the San Jose office.

Next, the belief and boundary control systems must be implemented to prevent any future misunderstandings. For example, the boundary system will clearly state that the activity of "cross-subsidizing" is not an acceptable business practice of ACS, and if this rule is violated, there will be punishment. • The belief system will complement the boundary system by inspiring employees to maintain the entrepreneurial spirit that is crucial to the organization. Aggressive managing partners such as Kyle Ross were key to revenue growth for ACS, so that kind of innovative spirit should not be deemed wrong. In fact, it should be further excited; however, a proper boundary control system will establish the ethical and strategic codes of conduct to keep activities in line with the mission statement of ACS. •

Detroit long-term  • Detroit's long-term strategy must be based upon the founders' discussion of the client prospecting system. This system is an interactive control system that would monitor prospecting activity and the probably volume of upcoming work, putting to rest the issue of an unforeseen lack of demand. • The partners’ opposition to this system would be relieved by the belief control system. The partners must be motivated by company goals and objectives, and realize that ACS can still be a decentralized business within the constructs of this interactive control system, but proper belief and boundary systems must be in place to assure that they are using the client prospecting system in the correct manner. This system would generate very useful data for resource planning for the entire firm. It would help ACS to better serve their large clients. • The partners must be debriefed and learn that the financial incentive is not enough, and some sort of interactive monitoring system must be implemented. Implementation can be eased by slow adoption and a belief system that encourages strategic focus. Boston long-term  • The Boston office raised the issues of controlling bids for one-time jobs and the strategic direction with respect to the manufacturing and service sectors. The long-term strategy in the Boston office, and the company as a whole, should be to focus on the boundary control system and the interactive control system. • Using the boundary control system, ACS can identify the criteria that define strategic focus to help judge whether a job should be pursued or not. If should not be pursued, it will be clearly stated in the strategic boundary control system (RED area). • Using the interactive control system, the founders and the partners can work together in a series of meetings to identify the opportunities in the emerging service sector and formulate the best plan of action to cater to this market. Perhaps the offices should create two divisions, one that requires skills that are important for service sector consulting jobs, and one that requires the traditional manufacturing focused skill set. This would all depend on the demand and possibilities for growth in each market.

Philadelphia long-term  • The problems that were identified in the Philadelphia office, that the founders suspected occurred in the entire company, were a result of the traditional revenue growth strategic focus. • The diagnostic control system would address these problems, as profit plans, budgets, goals, and objectives would be developed to assist the different offices in maximizing revenue and controlling expenses. This would ultimately convert each office into a profit center rather than a revenue center, and this would be in the best interest of the company. • Incentive plans would have to be revised which could result in implementation problems. These problems could be relieved by the belief control system. If the motives of the organization were clearly defined to all members of the organization, and the reasons for the changes were stated clearly and objectively, implementation could go much smoother. The belief system would also address the issue of lack of motivation to maintain a unified, firm-wide image.