CASE 2

The Wallace Group

Laurence J. Stybel

Introduction

The Wallace Group began as a sole proprietorship under the direct supervision of Harold Wallace, who

several years ago, undertook a plan to diversify his business. This is because the company’s revenue

generation in entirely dependent on defense-related contracts. As an answer to this, he grabbed the

opportunity to acquire his former supplier, a plastics company whose primary market was not defense-

related. At that time, Wallace’s debt structure was working for its disadvantage that is why the

company needed to gather equity capital. That was when a new corporate entity was created.

line extensions. Mr. Wallace ended with 45% of the Stocks, Jerome Luskics, former owner of the

Chemicals Company with 5% and rest of the 50% distributed among the public. The company now

consists of three groups, running as independent companies: Plastics, Chemicals and Electronics, each

managed by a Group Vice President with Harold Wallace serving as both Chairman and President and

keeps sole control all of the three entities, generating sales of $70 million with a net income of

$1,760,000. Presently, the morale within the company has deteriorated to the point where some of the

employee stockholders made an attempt to force Wallace1s resignation. Mr. Wallace has hired a

management consultant, Frances Rampar, to conduct a study into the problems facing The Wallace

Group. She was tasked to develop courses of actions for Wallace’s consideration.

Identification of key Issues

The most important problem of the Wallace group is lack of Corporate Governance because the

company was trapped in the way of thinking as a sole proprietorship which can be seen in the lack of
cohesiveness between the three divisions. Rather than operating as a team, the three treat each other

as rivals.

Corporate Governance

• Harold Wallace is trying to micromanage all three divisions

• Lack of a corporate strategy, company has no mission and no definite goals.

• Poor organizational design creates span of control problems and results in poor operations.

Personnel management:

• Recruitment backlog

• Salary structure is not commensurate and updated based on the current demand.

• There is no management development program in-placed.

• No performance standard and evaluation of employees

Reports management:

• There are no standard reports required by higher management.

• There is no value chain or coordination in between departments

Information Technology

• No consultation has been made to users as to what benefits they could get from the new system.
Corporate policy on transfer pricing

• The corporate policy of transfer pricing needs to be addressed in terms of product cost and

profit margin.

Diversification

• Heavy dependence on government contracts could put the corporation in financial difficulty if

further sales

• diversification cannot be found

Financial issues

• Unprofitable chemical division needs new management or it needs to be analyzed for sale to

someone else.

Marketing

• No clear marketing strategy

Courses of Action

1. Corporate Governance

Wallace group can operate effectively as a corporation if they develop an organizational chart

that will provide clearly-defined job responsibilities. In this way, equal importance to all divisions will

be achieved and decision-making will be improved. It will be an advantage if Mr. Wallace will focus
on becoming the Chaiman and let his managers manages. It is also important for the management to

have a new CEO who can manage the corporation, and continue providing a steady growth in the

earnings per share for the shareholders.

Formulation of a corporate strategy involving all the division managers is also recommended

by the group. The group also recommends that the management establish objectives for each division

giving each of the division managers the opportunity to express their need of having qualified

personnel, better communication strategy, and cost effective production.

2. Personnel management

In personnel management, the group recommends that the entity as a whole determine what

motivates the employees. It is important to know what are the most important areas in career

development, and other issues like leadership, recognition, status, and other areas of concern.

Review different areas of concern, like the recruitment process and identification of the causes

of a slow turn-over of hiring staff, salary structure, and staffing needs (e.g. employee training). It is

important to develop staff career development to help employees realize their career goals. This can

help the company attract and retain highly talented people.

The management should also establish performance standards and evaluate output.

3. Reports Management

The management should set standard reporting format or standard reports to facilitate decision-

making. This will serve as guide for the staff. It is also recommended to build close harmonious

relationships between departments and all staff through team-building activities. This is a way of

unifying and coordinating all the members of the organization. This will help solve problems of value

chain.

4. Information Technology
 In establishing an effective and cost-efficient information system, the company should

conduct a system survey among the staff to determine their needs and wants of the system itself.

Environmental scanning is also important because it monitors, evaluates, and disseminates

information from the internal as well as the external environments. It also provides the right people

with the right information within the organization.

4. Diversification

Diversifying product mix and customer base to help hedge against loss of large customers.

Allocation of sufficient and proper resources must also be given priority.

5. Financial and Accounting issues

To better address the problems of unprofitable chemical division, the company needs new

management and it needs to be analyzed and sold off based on cost/benefit analysis to the corporation.

Recommendations

Corporate Governance

The company should hire a new Chief Executive Officer who can apply a new corporate strategy and

manage a company as a whole and not as three separate divisions. Mr. Wallace should just leave the

managing to the managers.

Personnel Management

Develop a staff career development to provide information and training to motivate employees and help

them realize their career goals and help retain highly talented employees.
Reports Management

Conduct team-building in order to promote unity and cooperation between employees. This will

eventually help in improving the value chain of the company.

Information Technology

Environmental scanning will be important to disseminate, monitor and evaluate information from

internal and external environments to the right people in the organization.

Corporate Policy on Transfer Pricing

Let the transfer pricing policy be known to the company and clarify it. Managers should understand the

policy clearly and it must be weighed based on the overall profitability of the organization.

Diversification

Diversify product mix and customer base to hedge against loss of large customers. Allocation of

sufficient and proper resources must be given priority

Financial and Accounting Issues

Unprofitable chemical division needs new management or it needs to be analyzed and sold off based on

Cost/benefit analysis to corporation.