ORGANIZATIONAL BEHAVIOR MIDTERM FALL 2001

BA 205: Organizational Behavior MIDTERM EXAM Instructions: You may be somewhat aggressive in your interpretation of the question, but write a coherent and analytical essay that deals with all the issues to which the question pertains. The exam is open-book: there is no restriction on the materials (course or otherwise) you may refer to. However, it is an individual assignment. Do not consult with other class members or any one else in preparing your answer. You are limited to five double-spaced pages. Return a hard copy to F470, Charles Montague's work station, by 1pm, Friday, October 13. (Alternatively, you may email the essay as an MS Word attachment to lincoln@haas.berkeley.edu by the deadline only if it is a genuine hardship for you to be on Campus at that time). Analyze the structure, culture, and leadership of People Express. What were their strengths and weaknesses? Were they internally consistent; i.e., well aligned? Were they a good fit to PE's business environment, competitive strategy, and human resource practice? What changes in PE's structure, culture, and leadership might have strengthened the company and improved its odds of long-term success?

EXECUTIVE SUMMARY The case study of Booz-Allen Hamilton (the firm) presents various challenges experienced by the firm over the past 20 years. This essay is an analysis of Booz-Allens primary problem as described by the case: the firms inability to commercialize its product innovations. While there are some people within the firm that feel that a product-oriented strategy is undesirable, my assumption (based on the plane ride discussion between Mr. Dickie and Varasano) is that the top management of the firm wishes to pursue a product commercialization strategy. As such, this paper will: i) identify the challenges/problems that inhibit the firm in this regard, ii) analyze the causes of such problems, iii) discuss the firms initiatives in addressing these problems, iv)

recommend alternative solutions designed to enhance congruency, and v) present ideas on how such solutions might be implemented for maximum effectiveness. PROBLEM IDENTIFICATION As a result of a change in corporate strategy, a primary focus of the firm is the development of a product innovation and development capability that will yield scalable product offerings that the firm may efficiently deploy across its client base. However, significant problems exist in this regard, namely: i) the firms tendency to reject packaged offerings and instead seek to develop new and innovative solutions, ii) difficulty in transferring relevant knowledge and product expertise/experience to other employees within the firm, and iii) the reluctance of partners to bring unrefined/untested solutions to their clients. CAUSES OF PROBLEMS Competitive Environment With other consulting firms adopting Booz-Allens strategy of custom solutions, the firms competitive solution differentiation has eroded. The increase in competition has made it increasingly difficult for Booz-Allen to maintain its growth rate a top priority due to the impact of growth on the retention of talented employees. As a result, the firms top managers decided to embrace a new solution strategy. Formal Structure The formal structure of the firm is not in strong alignment with a product-oriented strategy. First, the establishment of multi-functional client teams does not provide for the development of product specific expertise. Second, there were few formal incentives for employees to develop product expertise. Because playing a key role in building major client relationships was the evaluation criterion for promotion to partner, few junior employees sought to develop product

expertise. Lastly, the Special Interest Groups (SIGs) were informal in structure, and not part of the formal structure. Informal Structure and Impact of History As a result of the firms history in developing custom solutions for clients, the culture of the firm is not compatible with the strategy of commercializing product offerings. Many of the firms partners and employees pride themselves on developing entirely customized solutions, and the firms partners are accustomed to acting independently. As a result, many partners reject such initiatives and play by their own rules. The lack of a united vision or leadership presence, such as in the case of Mary Kay or Anita Roddick of the Body Shop, only contributes to this problem.

Another cultural barrier is that many of the junior employees of the firm are particularly attracted to the diversity of work assignments offered by a custom solution strategy. With an environment characterized by routine products, turnover of junior employees could be problematic in this regard. Lastly, there is significant risk aversion in the firms culture. The partners are reluctant to introduce unrefined ideas to clients due to the risks of unsuccessful deployment. This reluctance is however congruent with the firms focus on serving fewer clients. With greater reliance on fewer clients, it is imperative that the partners maintain credibility in their client relationships. People As mentioned, many of the firms partners act independently and problematically reject the firms initiatives. FIRMS INITIATIVES IN ADDRESSING PROBLEMS The companys restructuring in 1987 was successful in reshaping the formal incentive and compensation structure. Based on the case it appears that the restructuring was successful in

influencing behavior and aligning partner incentives toward cooperation. However, the restructuring failed to reshape the conservative and custom-product oriented culture of the firm.

The three thrusts of companys 1994 V2K initiative were somewhat ineffective in supporting the product commercialization initiative of the firm. First and foremost, a focus on a small client base conflicts with a product oriented strategy of deploying scalable products across as many clients as possible. This strategy is also inconsistent with supporting risk-taking culture where client engagements are concerned. Second, the multifunctional teams that were created were targeted to serving specific clients, as opposed to specific products. Lastly, the Knowledge Engine: i) created a matrix structure where assignment rotation was the norm which is not conducive to developing specialized product skills and knowledge, ii) established the SIGs under informal structure, and thereby reduced its importance in the daily prioritization of employees, and iii) provided a useful online tool for associates in background data gathering, but failed to provide a mechanism for the partners to communicate and exchange product ideas. RECOMMENDED ALTERNATIVE SOLUTIONS Tasks In order to accomplish scalability in deploying solutions and further prevent the recreation of wheels, I would establish a solutions marketing group within each product area and give them responsibility for developing reusable sales tools, such as PPT presentations, value creation models, industry overviews, etc. This would help speed the firms time-to-market of product offerings. Allentown Materials is a great example of how critical time-to-market can be in a competitive environment. Most importantly, this group would edit and distribute a monthly newsletter highlighting newly developed products and evolutions of existing products, based on content received from the Client Solutions Committee.

Formal Structure The establishment of a formal Client Solutions Committee (CSC), comprised of the firms most highly respected and innovative employees would accomplish numerous objectives, namely: i) proliferating and developing innovative products, ii) providing internal visibility to the importance of product specialization, and iii) creating a cross functional team that is focused on the business process of developing, enhancing and commercializing innovative product ideas. I would also recommend making the SIGs part of the formal structure and re-establishing welldefined evaluation criteria for employees of all levels at the firm. Such criteria would include an emphasis on contributions to the product development processes, and contributions to the CSC. People I would strongly recommend eliminating those partners or employees that resist the new product commercialization initiatives. As one of the biggest barriers to this strategy is the firms culture, it is imperative that cultural consensus exist, one of the main themes presented in Charles OReillys Corporations, Culture and Commitment article. IMPLEMENTATION OF RECOMMENDED SOLUTIONS I would recommend that the firms employees select the members of the CSC through a voting system for two reasons: i) participation increases commitment (Ancona p. 41, reference to Nadler and Tushman article) and ii) the prestige of such positions would help reshape the culture to place high value on product specialization.

I would recommend that the newly defined evaluation criteria be made transparent across all levels of the organization. A highly transparent reward system would reduce the ability of rogue partners to influence the behavior of junior employees. In a system where measurement is highly

subjective, relationships with superiors become critical, thereby giving the partners tremendous influence over the behavior of junior employees. By contrast, in a system where measurement is well defined and transparent, performance becomes the primary focus of junior employees. In this system, it is imperative that the criteria for promotion to partner include contributions to product development / commercialization. Lastly, employees should be publicly rewarded on the spot for taking risks (OReilly emphasizes spot rewards p148). Some possibilities include circulating firm-wide memos giving recognition to deserving employees, or highlighting such an event on the front page of the newly created monthly newsletter.

Outline
Problem: Unable to commercialize product offerings Identification Packaging scalable offerings w/o redundant recreation of wheels Communicating offerings Transfering knowledge, expertise/experience Incentivising partners to use product offerings Causes History & Culture Historic focus on developing new ideas as opposed to commercializing existing ones Variety of assignments employees need for diversity Conservativism of partners Credibility with clients is key, particularly with strategy to serve fewer clients with more $$ Competitive Environment Competing firms adopting Booz-Allen strategy thereby reducing its competitive differentiation Growth rate increasingly difficult to maintain Necessary to retain talented employees Formal Structure Multifunctional client teams were inconsistent with developing product expertise Lack of formal incentives for people to develop product expertise Criteria for promotions to partner key role in building major client relationships SIGs were not formal structure they were informal structure Informal Structure History of partner fiefdoms partners used to making their own decisions and playing by their own rules Lack of united vision or leadership presence to overcome this Dont have a strong leader like Mary Kay or Anita Roddick (Body Shop) Cultural tendency toward conservatism People Reluctant partners are preventing the adoption of the product commercialization strategy Firms Strategies for Addressing Problem 1987 Reoganization Successful in Reshaping Formal Structure Restructured partner compensation Performance evaluated on 5 dimensions, not just revenue Peer appraisals Change of ethic from independent model to cooperative model Unsuccessful in Reshaping Informal Structure Partners still conservative Partners still resist product focus 1994 V2K Reorganization Fewer, More Expansive Client Relationships Conflicts with product strategy Conflicts with a risk-taking strategy Multifunctional Client Service Teams Focus on clients, not products. Does not support product commercialization objective

Knowledge Engine Matrix structure but still unclear how much rotation occurred (limits ability to develop specialization) Special Interest Groups under informal structure, receive low priority in the field Knowledge online only associates use it

Proposed Alternative Solutions Tasks Establish a solutions marketing groups within the key functional areas Creates reusable sales tools such as PPT presentations, value creation models, etc. for functional product groups Helps speed time to market with new products (Allentown Materials is a good example of slow time-to-market process) Monthly newsletter highlighting new product information Formal Establish client solutions committee comprised of the firms most highly respected and innovative employees This creates a cross functional team designed to focus on the business process of product development and commercialization Establish well defined measurement criteria for all staff members Including partners contributions to KOL Make SIGs a formal structure Allow partners to discount client fees for unrefined solutions Informal Encourage and promote risk-taking People Eliminate partners who dont adapt This as much about changing the culture and as such, consensus is critical and the values need to be reinforced across divisions and mgmt levels Implementation of Alternative Solutions Formal Client Solutions Committee Employees select committee members through voting system Participation increases committment Employees rewarded based on contributions to committee Choice of assignments Portion of their bonus determined by this Early promotion Re-Establish measurement criteria for promotion to partner Needs to include contributions to product/practice areas Growth of product group promotion of partners to product group Measured by new client engagements Measured by total product revenue growth Informal Encourage risk-taking Monthly newsletter with the front-page article featuring an employee taking risk and delivering value As discussed in reading by Charles OReilly people want to be accepted by others and want to live up to expectations All principles and partners asked to recommend one of their employees for this honor

Establish and consistently apply highly transparent formal measurement criteria for all employees, thereby reducing the incentives of staff members to follow and support the preferences of individual partners Transparency and consistency avoids cynicism, as pointed out by Charles OReilly, results from inconsistencies Senior partners need to talk about success stories at annual corporate retreat this leads to water cooler conversations about what is valued

Tie-In of Course Work Similar problems Similar mgmt solutions Similarly proposed solutions Similarly proposed implementation