The Rose Company

PROBLEM

Group 3: Bauzon, Garcia, Robosa

What adjustments in strategy implementation should be made in order for the Rose Company to meet its goals of maintaining competitive leadership and gaining product advantage? ANALYSIS Goal Maintain competitive leadership and gain product advantage through the reduction of costs and improvement of product quality. Strategy The Rose Company introduced new methods of manufacturing and mixing materials, some of which are unfamiliar to its employees. Furthermore, the company wanted to determine whether decentralized operation would bring in more value to the company than its current central control set-up. They initially implemented these changes on the Jackson plant, under the leadership of its new general manager, James Pierce. James Pierce, the General Manager Prior to his assignment as the Jackson plant general manager, James Pierce had been an accounting executive in the controllers department of the company. He was liked by the people in the department. At the same time, management views him as a highly capable individual because of the analytical abilities, general administrative capacity, and results-oriented disposition that he has displayed. His work experience however does not include managing people in the company. In a general sense, this was a big promotion for him. Evaluating the decision of the top management, James Pierce as a plant manager can imply that whatever the outcome of their decision can be accepted. First, James Pierce, as stated earlier has management capabilities but the company has not tested it yet. Second, knowing the first, the members of the top management did not give Pierce total control and discretion on the functional departments in the plant. Changes in the Organizational Structure As the general manager, Pierce had control over all functions and personnel at the Jackson plant, except sales. The vice presidents of manufacturing, production planning, quality control, industrial relations, and the other functions were to issue instructions from the headquarter to the Jackson plant through him. Problems will arise, however, if executives insist on maintaining a dotted-line relationship with their functional counterparts at the Jackson plant.

The maintenance of the dotted line relationship between VPs at the head office and counterpart functional managers at the plant needs to be defined. What is the nature of this dotted relationship? And to what extent is the reporting? Proper standard operating procedures must be designed and put in place otherwise there is a risk of bypassing Pierce and continuing with the old ways. VPs at the head office should also buy into the new changes, in order to fully give their support to Pierce. Management Control System Although it is not explicitly stated in the case, the logic follows that the new Jackson plant can be considered a cost center. That is, Pierces performance ought to be measured by his divisions ability to reduce production costs while still maintaining quality. Top management can assess through variances between the actual budget and estimated budget. The Jackson plants budget can be used for both planning and evaluating since new systems are being implemented. There are several things that must be considered in determining the plants budget. First, they must determine their targeted volume of production from the sales division. Second, they must factor in the cost of the raw materials needed. Third, they must determine the capacity of the plant the rate at which their machines are producing and the corresponding labor hours needed to work these machines and other aspects of production. The volume must not exceed capacity. Finally, they should compute the costs of running the machines and completing the labor hours required. We could be led to assume that because the companys goal is to reduce costs through a system reengineering, the assessment would be more comprehensive and better integrated through the budget variances. The presence of the dotted-line relationships would otherwise, though this claim is inconclusive. These relationships could be a way through which top management can monitor Pierces actions. If this were the case, then the success or failure of their new system cannot be straightforwardly justified. Power and Politics There are two ways through which we can assess Pierces power within the organization. His colleagues, and top management were quick to recognize Pierces expert power during his stint in the controllers department. They know that his exposure information passed on to him by the different functions of the company will be critical in selecting which costs a plant may cut. From the point of view of the Jackson plant personnel, Pierce possesses formal power power that was given to him by top management. His lack of experience in managing people and seemingly abrupt entry into the dynamics of the plant may pose some problems in the dynamics between Pierce and his managers. Commitment to an individual with formal power is less likely to develop as opposed to one with reward power one that has the ability to administer to another the things that he or she desires or to remove or decrease things that he or she does not desire. In this case, Rose Companys vice presidents have this power even if Pierce determines the rewards that they deserve to receive.

We have to keep in mind that prior to the changes at the Jackson plant, all of the Rose Company plants operated without a general manager. Moreover, among all the plants present, it was the Jackson plant that was selected for the pilot testing of the new systems. Whereas managers of other plants maintain their roles as the highest-ranking employee of the plant, the managers at the Jackson plant may feel that some power was taken away from them because of Pierce. A natural initial reaction to such drastic changes is resistance. The dotted-line relationships only increase the likelihood of active resistance. Managers who do not agree with Pierces decisions know that they can easily escalate concerns to top, whether or not it is reasonable. After all, there is no clear management control system in place yet. RECOMMENDATIONS Application of quantitative metrics as a responsibility center Top management should clarify the metrics for performance evaluation, and ensure that it is appropriate for its responsibility center classification. We earlier identified the Jackson plant as a cost center. Variances between the actual budget and estimated budget should be the main driver of performance measurement and production planning. The long-term solution is to re-classify each plant as an investment center, rather than maintaining it simply as an expense center. This would mean delegating the responsibility of plant sales to the plants general manager. As an investment center, return on assets (ROA) or economic value added (EVA) would be the metric for each plants performance. It is a better gauge of productivity because these account for the investments (plant and equipment) assets that have not yet been accounted for. Development of Pierces influence over his subordinates Pierce must be able to gain the support of each of his plant subordinates. He should meet with them individually and set the proper tone and direction for the coming year. Likewise, through speaking with them he should be able to get a clearer picture of the real current situation at the plant- the dynamics among members/the relationships, the culture, the morale of the employees, the challenges faced by the plant, etc. He should be able to gauge who supports him in his agenda, and use these supporters as champions to convert more to support him as well. He should be able to clearly set the objectives of top management and make each member understand their critical function in fulfilling this objective. He should be able to set clear, reasonable targets and metrics for each of his subordinates. These targets should be scientifically determined (based on plant capacity-machines, personnel, area, etc.) given that there is no precedence for the new production methods that are to be implemented. Review should be done often, perhaps monthly given that the processes are new and changes to the targets are bound to be adjusted based on initial performance. Pierce should be able to inspire his employees and motivate them. The changes are not easy for anyone, thus he should be firm but reasonable and realistic in the goals he sets for the employees. It is correct to delegate the entire function of rewarding and punishing the plant personnel to Pierce. This will give him proper authority and power at the plant even if he is a complete stranger.

Top management will play a key role in strengthening Pierces role at the Jackson plant. They should entrust the operations of the entire plant in Pierces care; thus not only making him accountable for results, but also strengthening his credibility amongst his managers and staff. More importantly, they should discourage their functional counterparts from reporting to them, and effectively dissolve the dotted-line relationships with them. Incremental implementation of changes The strategy was incrementally introduced to the organization, beginning with the Jackson plant as its pilot. Even with the careful implementation, the many proposed changes at Jackson plant are very challenging and unfamiliar to its staff. We recommend that the changes be implemented incrementally over a reasonable amount of time, say over a period of one year. The changes in reporting structure, i.e. reporting to a new boss; the implementation of new production methods; and the adaptation of new plant processes cannot all be done at the same time. Changes need to be introduced incrementally especially since the company has been very centralized for many years. Among the changes that need to be immediately implemented are the revised organization structure one that does not have the dotted-line relationships; and the new production processes. These are fundamental changes that need to be present so that planning for the future years may be more accurate. Strict adherence to the budget may be delayed for the second year because there is not enough data to make projections. The first year with the new changes will be crucial in gathering adequate data to forecast short-term performance, compute the budget, and set reasonable goals for the plant. Likewise, the re-classification of the plant from a cost center to an investment center may be delayed. After all, cost reduction per unit is the companys goal at the moment.